Page 109 - BA2 Integrated Workbook STUDENT 2018

Budgeting

Budget preparation

3.1 Principle budget factor

The principal budget factor is the factor which limits the activities of the organisation.
The principal budget factor is also known as the limiting factor or key factor.

This factor indicates which budget should be prepared first

For example, if sales volume is the principal budget factor, then the sales budget
must be prepared first. All other budgets should follow from this. It is important to
realise that all budgets are inter-related.

For a house builder, the principle budget factor may be the availability of land.

For a highly specialised technology company, the principle budget factor may be the
availability of skilled labour.

3.2 Functional budgets and the master budget

A number of functional budgets will be prepared and these will be pulled together into
the master budget which is a summary of all the functional budgets. It usually
comprises the budgeted statement of profit or loss, budgeted statement of financial
position and budgeted cash flow statement (cash budget).

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