ECONOMICS

Detailed explanation-1: -The static budget should be used primarily to determine whether cost control is being maintained. Responsibility for the overhead efficiency variance should be assigned to whoever is responsible for control of the activity base underlying the flexible budget.

Detailed explanation-2: -The static budget is intended to be fixed and unchanging for the duration of the period, regardless of fluctuations that may affect outcomes. When using a static budget, some managers use it as a target for expenses, costs, and revenue while others use a static budget to forecast the company’s numbers.

Detailed explanation-3: -Answer: b. A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for one level of activity.

Detailed explanation-4: -Disadvantages of static budgets 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. Along these lines, if a company identifies underperforming areas of the business, it can’t allocate additional resources to help.

Detailed explanation-5: -Static vs Flexible Budgets Static Budget-the budget is prepared for only one level of production volume. Also called a Master budget. Flexible Budget-a summarized budget that can easily be computed for several different production volume levels. Separates variable costs from fixed costs.