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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Which budget is usually treated as the principal budget factor-driven starting point when sales demand is the limiting factor of a firm?

The sales budget is the starting point when demand limits activity. The limiting, or principal budget factor, determines the level of operations, so the sales budget is prepared first and the other budgets follow, ending with the master budget.

  1. ACash budget
  2. BSales budgetCorrect
  3. CCapital expenditure budget
  4. DMaster budget

Explanation

The principal budget factor is the factor limiting activity. When demand is the constraint, the sales budget is prepared first and other functional budgets are built on it. The master budget is prepared last as a summary.

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