CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control
Which budget is prepared first when the principal budget factor of a company is shortage of skilled labour, so that all other functional budgets are built around it?
The labour availability budget is prepared first, because skilled labour is the limiting or principal budget factor. Every other functional budget must be fitted within that constraint. The sales budget would come first only if market demand, not labour, were the limiting factor.
- ALabour availability budgetCorrect
- BCash budget
- CMaster budget
- DSales budget
Explanation
The principal (key) budget factor is the factor that limits activity of the entity. Here it is skilled labour, so the budget for that factor is prepared first and other budgets are coordinated with it. The sales budget is first only when sales demand is the limiting factor.
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