Flexed Budgets

Question 1

What is a fixed budget?

Answer 1

A budget prepared in advance based on forecast sales and planned activity levels

It does not account for actual volume differences during the budget period.

Question 2

Why is a flexed budget necessary?

Answer 2

To ensure a fair, like-with-like comparison between budgeted plans and actual results

It adjusts the original budget based on actual sales and production volume.

Question 3

What are the four cost behaviours identified in flexed budgets?

Answer 3

• Variable
• Fixed
• Semi-variable
• Stepped

Understanding these behaviours helps in adjusting the budget accurately.

Question 4

What is the behaviour classification of materials in a flexed budget?

Answer 4

Variable

The total material cost increases with volume, making it a wholly variable cost.

Question 5

What is the behaviour classification of labour in a flexed budget?

Answer 5

Stepped

Labour cost increases at fixed production intervals, requiring additional employees for every 3,000 units manufactured.

Question 6

What is the behaviour classification of power in a flexed budget?

Answer 6

Semi-variable

Power cost has both fixed and variable elements, as the unit cost decreases with increased volume.

Question 7

What is the behaviour classification of rent in a flexed budget?

Answer 7

Fixed

Rent cost does not change with production volume, making it a wholly fixed cost.

Question 8

What does a negative variance indicate?

Answer 8

Adverse performance

Occurs when actual sales revenue is less than flexed budget sales revenue or actual costs exceed flexed budget costs.

Question 9

What does a positive variance indicate?

Answer 9

Favourable performance

Occurs when actual sales revenue exceeds flexed budget sales revenue or actual costs are less than flexed budget costs.

Question 10

In the context of flexed budgets, what is the total profit for the original budget?

Answer 10

$41,000

This is the expected profit based on the original budget before adjustments.

Question 11

What is the sales revenue for the flexed budget when production volume is 190,000 units?

Answer 11

$617,500

This figure is adjusted based on the actual sales volume.

Question 12

What is the flexed budget cost for cocoa beans at a production volume of 1,650,000 kg?

Answer 12

$1,551

This cost increases proportionately with production volume.

Question 13

What is the flexed budget cost for sugar cane at a production volume of 1,650,000 kg?

Answer 13

$264

This cost also increases proportionately with production volume.

Question 14

What is the flexed budget cost for machine operative labour at a production volume of 1,650,000 kg?

Answer 14

$2,281

This includes both fixed and variable components adjusted for increased production.

Question 15

What is the fixed overheads cost in the flexed budget?

Answer 15

$490

Fixed overheads remain unchanged regardless of production volume.

Question 16

True or false: A flexed budget provides a fairer basis for performance evaluation than a fixed budget.

Answer 16

TRUE

It adjusts for actual production levels, allowing for more accurate comparisons.

Question 17

What amount of profit did the India Division generate less than expected?

Answer 17

$563,500

This figure indicates the underperformance compared to the budgetary expectations.

Question 18

Who is the divisional manager mentioned in the report?

Answer 18

Sandeep Agarwal

He can use the report to identify problem areas and investigate variances.

Question 19

What is the primary purpose of the budgetary control report?

Answer 19

To compare the flexed budget and actual results

This helps in identifying variances and areas needing corrective action.

Question 20

True or false: A budget is prepared in advance of the budget period, making it likely to accurately forecast sales or production volume.

Answer 20

FALSE

Budgets are often not accurate in forecasting due to changing conditions.

Question 21

What must be ensured when evaluating performance in a budgetary control report?

Answer 21

The comparison must be fair

This reduces the risk of unnecessary investigations and demotivating department heads.

Question 22

What does flexing the budget involve?

Answer 22

Adjusting the budget to reflect actual sales and production volume

This allows for a like-with-like comparison with actual results.

Question 23

What is the benefit of comparing budgeted results to actual results?

Answer 23

It provides more meaningful analysis

This is achieved by calculating variances after flexing the budget.