Lecture 11 - Flexible budget Flashcards

1
Q

Why is the master budget referred to as the fixed budget?

A
  1. No plans are made for differing levels of production or sales
  2. When actual results are known, no changes
    are made to the fixed budget to represent new targets to be achieved for the new level of activity
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2
Q

What is a flexible budget?

A

A budget designed to change as volume of output changes through recognising cost behaviour patterns

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3
Q

Why might flexible budgets be used at the end of a period?

A

In order to establish what the results should have been under the circumstances

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4
Q

Why are flexible budgets good for dynamic businesses?

A

It is unlikely that actual trading is going to be the same as the fixed budget, comparing actual results
with the fixed budget will probably be misleading.

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5
Q

Budgetary control is the practice of….

A

Establishing budgets, for which individual managers will have responsibility. Control is exercised via comparing actual results with expected results; the differences between the two are referred to as “variances”. By analysing variances these form a basis for performance evaluation.

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