Pellini Products Inc.is a manufacturer of paper products.For which of the following activities would Pellini be more likely to use a flexible budget than a static budget?
A) For planning the quantity of direct materials that will be need to be purchased in the upcoming year
B) For planning the estimated cash receipts in the upcoming year
C) For planning the number of direct labour hours employees will need to work in the upcoming year
D) For the evaluation of whether or not employees made the most efficient use of their time during the year

Question

Quizplus · Accepted Answer

Flexible budgets are more useful for performance evaluation purposes, such as assessing how efficiently employees used their time, because they can adjust for actual levels of activity. Static budgets, on the other hand, do not adjust and are more useful for planning purposes.