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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

A company prepares a budget in which the budgeted figures are not fixed but are adjusted to the actual level of activity achieved, so that the budgeted cost allowed for the output is compared with the actual cost. Which type of budget is this?

This is a flexible budget. It is recast for the actual level of activity attained, so the allowed cost for actual output can be fairly compared with actual cost. A fixed budget does not change with activity, which makes such comparison less meaningful.

  1. AFlexible budgetCorrect
  2. BFixed budget
  3. CZero base budget
  4. DMaster budget

Explanation

A flexible budget is designed to change in line with the level of activity actually attained. A fixed budget stays unchanged irrespective of actual activity, a zero base budget justifies every item from scratch, and a master budget is the consolidated summary of functional budgets.

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