ExpertEasy2 marksMultiple Choice
ACCA · Question 18 · Budgeting
Section A
SteelForge Manufacturing is preparing its functional budgets. The sales director confirms demand for 50,000 units. The factory has a maximum capacity of 40,000 machine hours. Each unit requires 1 machine hour. Raw materials are abundant. What is the principal budget factor for SteelForge?
Section A
SteelForge Manufacturing is preparing its functional budgets. The sales director confirms demand for 50,000 units. The factory has a maximum capacity of 40,000 machine hours. Each unit requires 1 machine hour. Raw materials are abundant. What is the principal budget factor for SteelForge?
Answer options:
A.
Sales demand
B.
Raw materials
C.
Machine hours
D.
Labor hours
How to approach this question
Identify the factor that restricts the organization from achieving its maximum potential. Compare required resources for sales demand against available resources.
Full Answer
C.Machine hours✓ Correct
The principal budget factor (or limiting factor) is the factor that limits the activities of an organization. Here, to meet sales demand of 50,000 units, 50,000 machine hours are needed. Since only 40,000 are available, machine capacity is the bottleneck.
Common mistakes
Assuming sales demand is always the principal budget factor.
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