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

A company prepares a budget that is fixed for a single level of activity and is not adjusted even if actual output differs from the planned output. This type of budget is called a:

This is a fixed budget, because it is prepared for one predetermined level of activity and is not changed when actual output differs. A flexible budget would be recast for different activity levels, so it does not fit the description given.

  1. AFlexible budget
  2. BFixed budgetCorrect
  3. CZero-based budget
  4. DRolling budget

Explanation

A fixed budget is drawn up for one predetermined activity level and is not revised when actual activity differs. A flexible budget, by contrast, is recast for different activity levels. Zero-based and rolling budgets differ in how they are built or updated, not in being tied to a single activity level.

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