ACCA Applied Knowledge · Management Accounting · Flexible budgets
Which statement best explains why a flexed budget gives a fairer basis for performance reporting than the original fixed budget?
A flexed budget adjusts budgeted revenue and variable costs to the actual activity level, so like is compared with like. Variances then reflect price and efficiency performance rather than differences in volume.
- AIt removes fixed costs from the comparison
- BIt compares actual results with budgeted costs and revenues adjusted to actual activity levelCorrect
- CIt uses last year's actual results as the benchmark
- DIt eliminates the need to investigate variances
Explanation
A flexed budget restates budget to the actual activity level, so differences arise from efficiency or price rather than volume. Fixed costs remain in it, and variances still need investigation.
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