Flexed budgets Flashcards
1
Q
Why is the original operating statement of little use to management
5 points
A
- Does not reflect changes that may happen due to changes in sales units
- adjusts targets to fit uncontrollable fcircumstances not known when creating budget
- uncontrollable volume effects removed from manager’s performance reports
- costs change with variability of costs
- misleading to compare different activity levels
2
Q
Problems assosiated with the forecasting of figures that are used in flexible budgeting
4 points
A
- Difficultly in dividing costs accurately into fixed and variable elements
- Past cost and acttivity information used to estimate future cost behaviour
- Step fixed costs may occur (hard to know when it happens)
- Assumed variable costs are constant per uni
3
Q
First step for flexible budget is
A
(budget - actual) / actual x 100 to find percentage used to calculate flexed budget
