ECONOMICS

Detailed explanation-1: -Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity. Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

Detailed explanation-2: -What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do? A performance budget report that is flexible helps managers relate costs and revenues budgeted for a period with the actual costs and revenues generated depending on the sales made in that period.

Detailed explanation-3: -A flexible budget is a budget that changes as per the activity level or production of units. The fixed budget is static and doesn’t change at all. On the other hand, a flexible budget is adjustable as per the necessity of the business. A fixed budget is always fixed.

Detailed explanation-4: -The flexible budget will show different possibilities for variable expenses and revenue. Variable costs can include marketing and sales, and may also include the cost of materials, number of sales, and shipping costs. A flexible budget will include lines for different amounts.

Detailed explanation-5: -A flexible budget is an important tool for management. It helps in setting the expected costs, revenues, and profitability of the business. Further, since the flexible budget is not rigid, it can be adjusted according to the actual activity level at the end of the accounting period and used for variance analysis.