ECONOMICS

COST ACCOUNTING

FLEXIBLE BUDGETS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
It is not important that the activity base and overhead costs be causally related when developing a flexible budget.
A
True
B
False
Explanation: 

Detailed explanation-1: -Answer and Explanation: The correct answer is a. Flexible budgets are based on different assumptions about cost behavior than those used for static budgets. Flexible budgets do not assume different cost behaviors than static budgets but rather they assume different levels of activity.

Detailed explanation-2: -Answer and Explanation: The correct answer is *a) Consists of estimates of costs and expenses for various possible levels of activity. Flexible budgets are accounting tools that calculate different expenditure levels for variable costs, depending upon changes in actual revenue.

Detailed explanation-3: -A flexible budget can be used to determine what costs should have been at a given level of activity. If activity is higher than expected, total variable costs should be higher than expected. If activity is lower than expected, total variable costs should be lower than expected.

Detailed explanation-4: -A flexible budget can be prepared for any level of activity. The advantage to a flexible budget is we can create a budget based on the ACTUAL level of production to give us a clearer picture of our results by comparing the flexible budget to actual results.

There is 1 question to complete.