The purpose of a flexible budget is to:

a. remove items from performance reports that are not controllable by managers.

b. permit managers to reduce the number of unfavoorable variances that are reported.

c. update the static planning budget to reflect the actual level of activity for the period.

d. reduce the amount of conflict between departments when the master budget is prepared.

Question

Saunders

Business

18 July, 05:06

The purpose of a flexible budget is to:

a. remove items from performance reports that are not controllable by managers.

b. permit managers to reduce the number of unfavoorable variances that are reported.

c. update the static planning budget to reflect the actual level of activity for the period.

d. reduce the amount of conflict between departments when the master budget is prepared.

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Answers (1)

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Marco Morgan · Answer 1

c. update the static planning budget to reflect the actual level of activity for the period

Explanation:

A flexible budget is a financial plan of expenses and revenues based on the actual level of output. A flexible budget adapts to changes in prices and company needs. Because the budget varies with the market condition, it is called a variable cost.

Due to their variable nature, flexible budgets are used to update the static estimates at the end of a period. The company compares the actual result in the flexible budget with that of a static budget. The management uses a flexible budget to evaluate the business performance for the period. Specific areas of success and failures are highlighted. Decisions on areas that need improvement can then be made.