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

Which of the following is a limiting (key) factor in budget preparation?

A key or limiting budget factor is the factor that restricts the activity of an undertaking, such as limited demand or scarce materials. It is considered first when preparing budgets, and all other budgets are coordinated around it.

  1. AA factor that restricts the activity of an undertaking and must be considered first when preparing budgetsCorrect
  2. BA factor that is the same in every budget period
  3. CA cost that does not change with output
  4. DA variance that arises from changed prices

Explanation

The key or principal budget factor limits the organisation's activities, such as scarce material, labour or demand. Budgets are first prepared for this factor and others are then coordinated with it. The other options describe unrelated ideas.

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