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The principal budget factor (key factor) is:
AThe fixed cost line
BThe most profitable product
CThe factor limiting total output
DThe variable rate
Answer & Solution
Correct answer: C. The factor limiting total output
1. The principal budget factor is the resource or condition that limits the activities of the firm.
2. It is identified first because all other budgets are built around it.
3. Common key factors include sales demand, material availability, labour skill, or machine capacity.
4. Hence the principal budget factor is the factor limiting total output.
_Source: ICAI BoS Inter Paper 3, Ch 15 "Budget", §15.6 ¶2_
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