The purpose of a flexible budget is to:
A)remove items from performance reports that are not controllable by managers.
B)permit managers to reduce the number of unfavorable variances that are reported.
C)update the static planning budget to reflect the actual level of activity of the period.
D)reduce the amount of conflict between departments when the master budget is prepareD.When a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget.

Question

Quizplus · Accepted Answer

The purpose of a flexible budget is to update the static planning budget to reflect the actual level of activity of the period. This allows for a more accurate comparison between actual costs and what the costs should have been for the actual level of activity during the period. It also enables managers to better understand where variances are occurring and take corrective actions. Choice A is incorrect because a flexible budget does not remove items from performance reports that are not controllable by managers, it adjusts the budget for actual activity levels. Choice B is incorrect because a flexible budget does not permit managers to reduce the number of unfavorable variances, it provides a more accurate picture of variances. Choice D is incorrect because a flexible budget does not reduce conflict between departments when the master budget is prepared, it allows for better planning and decision making based on actual levels of activity.

The Purpose of a Flexible Budget Is To