ExpertEasy2 marksMultiple Choice
ACCA · Question 22 · D. Budgeting
A tech hardware manufacturer is preparing its master budget. Due to a global supply chain crisis, the company can only source 50,000 microchips this year, despite having customer demand for 80,000 units of their product (each requiring one chip).
In this scenario, what does the supply of microchips represent in the budgeting process?
A tech hardware manufacturer is preparing its master budget. Due to a global supply chain crisis, the company can only source 50,000 microchips this year, despite having customer demand for 80,000 units of their product (each requiring one chip).
In this scenario, what does the supply of microchips represent in the budgeting process?
Answer options:
A.
The principal budget factor
B.
A flexible budget variance
C.
The master budget
D.
An uncontrollable fixed cost
How to approach this question
Identify the constraint that limits production/sales. In budgeting terminology, this is the principal budget factor.
Full Answer
A.The principal budget factor✓ Correct
The principal budget factor (also known as the limiting factor) is the factor that limits the activities of an organization. Because they can only get 50,000 chips, production and sales are capped at 50,000 units. The budget process must start here.
Common mistakes
Assuming sales demand is always the principal budget factor. While it usually is, material or labor shortages can become the limiting factor.
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