ACCA Applied Knowledge · Management Accounting · Flexible budgets
Which statement best describes why a flexed budget is used in performance reporting?
A flexed budget is used to compare actual results with budgeted figures restated to the actual activity level. This makes the comparison like-for-like, so variances reflect efficiency and price differences rather than differences in volume.
- AIt allows actual results to be compared with budgeted costs and revenues for the actual activity levelCorrect
- BIt replaces the original budget permanently once activity differs from plan
- CIt removes all fixed costs from the comparison
- DIt is prepared only after the period to justify managers' decisions
Explanation
A flexed budget restates budgeted revenue and variable costs to actual activity so that like is compared with like. It does not replace the original budget permanently and fixed costs remain unchanged within the relevant range.
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