Flexed budgets

Question 1

Why is the original operating statement of little use to management

5 points

Answer 1

• Does not reflect changes that may happen due to changes in sales units
• adjusts targets to fit uncontrollable fcircumstances not known when creating budget
• uncontrollable volume effects removed from manager’s performance reports
• costs change with variability of costs
• misleading to compare different activity levels

Question 2

Problems assosiated with the forecasting of figures that are used in flexible budgeting

4 points

Answer 2

• Difficultly in dividing costs accurately into fixed and variable elements
• Past cost and acttivity information used to estimate future cost behaviour
• Step fixed costs may occur (hard to know when it happens)
• Assumed variable costs are constant per uni

Question 3

First step for flexible budget is

Answer 3

(budget - actual) / actual x 100 to find percentage used to calculate flexed budget