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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

A manufacturing company prepares a budget in which the budgeted costs are restated for the actual level of activity achieved, so that actual costs can be compared with costs allowed for that output. Which type of budget is this?

This is a flexible budget. It recasts budgeted costs to the actual level of activity achieved, giving a fair comparison of actual cost with the cost allowed for actual output. A fixed budget does not change with activity, so it cannot give this like-for-like comparison.

  1. AFixed budget
  2. BFlexible budgetCorrect
  3. CZero-based budget
  4. DMaster budget

Explanation

A flexible budget is designed to change with the level of activity actually attained, so it gives the cost allowed for the actual output. A fixed budget stays unchanged whatever the activity. A zero-based budget justifies every item from scratch, and a master budget is the consolidated summary budget.

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