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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

A budget that is designed to change in accordance with the level of activity actually attained is called a:

A flexible budget is the budget that adjusts to the level of activity actually achieved. It separates fixed and variable costs and recomputes allowed costs at actual output, unlike a fixed budget, which stays unchanged whatever the activity level.

  1. AFixed budget
  2. BFlexible budgetCorrect
  3. CMaster budget
  4. DCapital budget

Explanation

A flexible budget is recast for different activity levels, separating fixed and variable costs. A fixed budget stays unchanged whatever the actual activity, so it is not correct here.

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