02-26-2009, 06:19 PM
Manni Bhayee
Infract the plant capacity can also be taken as Principle Budget Factor or limiting factor if the production cannot be increased beyond a certain limit in near future and the expected sale is much more than the production capacity. There are certain other factors which can be considered as limiting factor for instance availability of raw material etc. But in general speaking sales budget is prepared first and budgeted sales considered as principle budget factor as you have mentioned in replying my question.
Here the question of increasing production capacity can also be raised. If a business wants to increase production capacity then it has certain alternatives for instance number of shifts can be increased or additional plant and machinery can be installed but in many cases if the production capacity needed to be increased then the Fixed overhead do not remain constant. It also makes more difficult the whole budgetary process.
Regards,
Awais
Infract the plant capacity can also be taken as Principle Budget Factor or limiting factor if the production cannot be increased beyond a certain limit in near future and the expected sale is much more than the production capacity. There are certain other factors which can be considered as limiting factor for instance availability of raw material etc. But in general speaking sales budget is prepared first and budgeted sales considered as principle budget factor as you have mentioned in replying my question.
Here the question of increasing production capacity can also be raised. If a business wants to increase production capacity then it has certain alternatives for instance number of shifts can be increased or additional plant and machinery can be installed but in many cases if the production capacity needed to be increased then the Fixed overhead do not remain constant. It also makes more difficult the whole budgetary process.
Regards,
Awais
