ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
Which of the following budgets would normally be prepared FIRST in a company whose principal budget factor is sales demand?
The sales budget is prepared first because sales demand is the principal budget factor. All other budgets, such as production, purchases and cash, depend on the planned sales volume, so sales must be established before they can be prepared.
- AProduction budget
- BSales budgetCorrect
- CRaw material purchases budget
- DCash budget
Explanation
When sales demand limits activity, the sales budget is prepared first. The production budget then follows from sales plus the change in finished goods inventory, then materials and labour budgets. The cash budget is prepared late because it depends on the other budgets.
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