The correct answer is: Establish the organisation's long-term objectives.

Since each budget is set within the framework of the long-term plan, the long-term plan must be established before any of the other budget tasks can be undertaken. The (usually annual) budget acts as the first step towards the achievement of the organisation's long-term plans.

Calculation of the overhead absorption rate is unlikely to be the first task undertaken. It will depend on other budgets being prepared first, for example the production budget and the overheads budget.

The principal budget factor is important because it is the limiting factor which must be identified before the other budgets can be prepared. The limiting factor may be affected by the organisation's long-term objectives, however, and so its identification is not the first task to be undertaken.

The sales budget may be the first budget to be prepared, if sales are the principal budget factor. The establishment of the long-term plans and identification of the principal budget factor must come first, however.