Question

A manufacturing company is preparing its budgets for the coming year. Although demand for its product is high, production cannot exceed 15,000 units because of limited machine hours and shortage of skilled labour. While preparing the functional budgets, management first considers this constraint before finalising all other budgets. In budgeting terminology, this constraint is known as _______

Q: Answer-A manufacturing company is preparing its budgets for the coming year. Although demand for its produc...

A Key or Limiting factor is a resource or activity that limits the companys ability to achieve its objectives. It limits productionsales capacity. All budgets are prepared with reference to this factor. Examples Labour shortage Limited machine hours Raw material shortage Sales demand limit Capital constraint Since machine hours labour restrict output, it is a key or Limiting factor