Skip to content

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

Which of the following is the principal budget factor (limiting factor) in the budgeting process?

The principal budget factor is the factor that limits the activities of an undertaking, such as sales demand or scarce materials, and so is considered first when preparing budgets. It is not simply the largest cost item or a board-imposed constraint.

  1. AThe factor that limits the activities of an undertaking and is considered first in preparing budgetsCorrect
  2. BThe factor that is the largest item of cost in the budget
  3. CThe factor that is fixed by the board for all departments
  4. DThe factor that arises only from variances in the prior period

Explanation

The principal budget factor is the factor that limits the activities of the organisation, such as sales demand, material or labour availability. Budgets are prepared by first fixing the budget for this factor. It need not be the largest cost item or be related to variances.

Did you get it right without looking?

One question tells you little. A timed set on Budgets and Budgetary Control shows your real accuracy, how long you take and where you lose marks.

Practise Budgets and Budgetary ControlFree diagnostic mock

More Budgets and Budgetary Control questions