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

Which of the following budgets is normally prepared first when the principal budget factor is sales demand, because the other functional budgets depend on it?

The sales budget is prepared first when sales demand is the principal budget factor. It sets the volume of activity, and production, materials, labour, overhead and cash budgets are built from it. The master budget is a consolidation prepared at the end.

  1. ASales budgetCorrect
  2. BCash budget
  3. CProduction budget
  4. DMaster budget

Explanation

When sales demand is the limiting (principal budget) factor, the sales budget is prepared first. Production, purchase and cash budgets are derived from it. The master budget is the final summary, so it comes last, not first.

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