Section A

VoltMotors manufactures electric vehicle batteries. Due to global supply chain issues, they can only acquire 50,000 kg of lithium next year, which is less than they need to meet customer demand.

In the context of budgeting, what does the shortage of lithium represent?

The principal budget factor (also known as the limiting factor or key factor) is the factor that limits the activities of an organization. It is usually sales demand, but it can also be a shortage of materials, labor, or machine capacity. The budget for this factor must be prepared first, as all other budgets depend on it.