COST ACCOUNTING
FLEXIBLE BUDGETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the difficulty in developing such budgets due to the high cost of gathering the necessary information.
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the cost behavior pattern of manufacturing overhead, which is primarily fixed.
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that the variances between actual and budget on a static budget result from comparing actual costs at one level of activity to budgeted costs at a different level of activity.
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their length and complexity.
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Detailed explanation-1: -C. that the variances between actual and budget on a static budget result from comparing actual costs at one level of activity to budgeted costs at a different level of activity. This is the correct option.
Detailed explanation-2: -The greatest disadvantage of the static budget is its lack of flexibility. If a company establishes a budget based on a certain level of sales volume and that volume increases, it can’t allocate additional resources to keep up.
Detailed explanation-3: -disadvantage of static budgets is that they do not adjust for changes in activity levels. Flexible budgets. show the expected results of a responsibility center for several activity levels. A flexible budget is, in effect, a series of static budgets for different levels of activity.
Detailed explanation-4: -The static budget uses the original volume forecasted, while the flexible budget is updated for the actual volume. For example, if during May Year 1, the company budgeted 10, 000 units, but actually sold 12, 000 units, then the static budget would use 10, 000 units and the flexible budget would use 12, 000 units.
Detailed explanation-5: -Benefits of a Static Budget A static budget helps to monitor expenses, sales, and revenue, which helps organizations achieve optimal financial performance. By keeping each department or division within budget, companies can remain on track with their long-term financial goals.