The initial step when constructing an operating budget is __________?
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Answer: C. revenue budget
Explanation
The revenue budget serves as the foundational starting point when constructing an operating budget. Projected sales volume and selling prices drive almost all subsequent operational plans. Without this initial sales forecast, production and purchasing budgets cannot be determined. The master budget process begins with forecasting demand for products or services. Once expected revenues are established, production budgets determine required output levels. Subsequent schedules calculate necessary direct materials, labor, and overhead.
Retailers and manufacturers rely on accurate sales forecasts to manage inventory levels. A flawed revenue budget leads to cascading errors throughout the entire financial planning process. Therefore, market research is heavily emphasized at this stage. Cost budgets depend on prior production and activity volume projections. Material lists are derived only after production targets are established. List of investors relates to financing activities rather than operating budget creation.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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