ACCA Applied Knowledge · Management Accounting · Budget preparation
Which of the following is normally the FIRST budget prepared when sales demand is the principal budget factor?
The sales budget is prepared first. When demand is the principal budget factor, the level of sales sets the limit on activity, and the production, materials, labour, overhead and cash budgets are all derived from the budgeted sales volume.
- AProduction budget
- BSales budgetCorrect
- CDirect materials usage budget
- DCash budget
Explanation
If sales demand limits activity, the sales budget is prepared first because production, purchasing, labour and cash budgets all derive from the volume of sales. The production budget depends on it.
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