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What is the principal budget factor (limiting factor)?

Intermediate

Answer

The principal budget factor is the constraint that limits the organization's activity and therefore determines where budgeting must start. Most often it's sales demand, but it could be production capacity, a scarce material, labor, or cash. The budget is built around this factor first because everything else depends on it.
Real-world example With demand exceeding capacity, machine hours become the principal budget factor, so production is budgeted first.

Common follow-ups: Why start with the limiting factor? | What is usually the principal budget factor?

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All 34 The Budgeting Process questions