ICAEW BIP · Chapter 6 · Question 2 of 11
A company can sell all it produces, but the supply of a specialist component is restricted. In this situation, what is the principal budget factor?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The availability of the specialist component
Explanation
The principal (or key) budget factor is the factor that limits the organisation's activities, so it must be budgeted first and all other budgets built around it. Sales demand is often the principal budget factor, but here the company can sell everything it makes, so the limit is the supply of the component.
More Budgeting: purposes and approaches MCQs
- Q4Which of the following best describes zero-based budgeting?
- Q5A company prepares a 12-month budget and, at the end of each quarter, adds a further quarter so that a 12-month budget always exists. What…
- Q6Which of the following is a recognised disadvantage of participative (bottom-up) budgeting?
- Q7Activity-based budgeting (ABB) differs from traditional budgeting mainly because it:
- Q8What is a fixed budget?