7. Making Comparisons - budgetary control

Question 1

What is control?

Answer 1

The process of using a budget to make comparisons against actual results

Question 2

What are the types of budget?

Answer 2

Fixed budget
Flexible budget
Flexed budget

Question 3

What is a fixed budget?

Answer 3

They are drawn up at the start of the year, based on the budgeted sales and production volumes

Question 4

What is a flexible budget?

Answer 4

A budget drawn up at the start of the year, it involves a series of budgets based on various different sales and production volumes, showing different potential outcomes

Question 5

What is a flexed budget?

Answer 5

A revised budget drawn up at the end of the year based upon the actual sales and production volumes but using the budgeted unit revenues and cost

Question 6

What are the calculations required to flex a budget?

Answer 6

1. Check each cost to identify whether it is fixed, variable, semi-variable or stepped-fixed.
2. Separate semi-variable costs using the high-low method
3. Consider any increases or decreases in stepped fixed costs