CMA Intermediate · Cost Accounting · Budget and Budgetary Control
A flexible budget differs from a fixed (static) budget mainly because a flexible budget:
A flexible budget is recast to show the costs allowed at the actual activity level achieved. Because it separates fixed and variable costs, it allows a fair comparison of actual and budgeted costs, unlike a fixed budget prepared for a single activity level.
- AIs prepared for one level of activity only and never revised
- BIs recast to show the costs allowed at the actual level of activity achievedCorrect
- CIgnores the distinction between fixed and variable costs
- DIs prepared only for the capital expenditure of a firm
Explanation
A flexible budget is designed to change with the level of output, so it gives the allowed cost for the actual activity. A fixed budget is tied to one activity level. Separation of fixed and variable costs is essential to a flexible budget, so the option ignoring it is wrong.
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