Name and briefly explain five main key factors that affect budgeting process.

Five key factors that affect the budgeting process:

  • Demand:the annual demand or any relevant period‟s demand must be estimatedfirst before the purchases, production and expenses budgets can be
  • Plant capacity: Is a critical factor especially in small firms in high growth They must utilize their plant capacity in such a way as to maximize profits.
  • Labour:Highly skilled labour is a key factor to consider especially in thedeveloping countries where such labour may not be readily available or is very expensive.


  • Capital: This is the main key factor in capital budgeting. The projects that willutilize the cash to generate the highest level of profits are taken first, ceteris
  • Raw material:This is a key factor especially if the materials‟ supply fluctuates over Some materials are also very expensive.
  • Machine hours:These are a constraint in capital intensive firms because themachine capacity may be lower than the capacity required to meet the market The available capacity will have to be utilized in such a way that profits are maximized.

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