CMA Intermediate · Cost Accounting · Budget and Budgetary Control
Which of the following is the principal budget factor (key factor) for a firm whose sales demand is unlimited but whose output is restricted by the availability of skilled labour hours?
The principal budget factor is skilled labour hours. A key factor is the constraint limiting the firm's activity, and with unlimited demand, labour availability caps output, so all other budgets must be built around that limitation.
- ASales
- BSkilled labour hoursCorrect
- CCash
- DPlant maintenance cost
Explanation
The principal budget factor is the factor that limits the activity of the undertaking and around which other budgets are prepared. Since demand is unlimited, the constraint is skilled labour hours, so the production budget is based on them. Sales would be the key factor only if demand were limiting.
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