Why are flexible budgets powerful control tools?
A) They allow the preparation of historical reports.
B) They allow managers to set the budget at a budgeted activity level.
C) They allow the calculation of what cost should be for the actual level of activity.
D) They allow the calculation of what cost should be for the budgeted level of activity.

Question

Quizplus · Accepted Answer

Flexible budgets are powerful control tools because they allow the calculation of what cost should be for the actual level of activity, which helps managers compare actual performance to what was expected at the actual level of activity. This enables managers to identify variances and take corrective actions where necessary to achieve the desired results. Option A is incorrect as historical reports are not specific to flexible budgets. Option B is incorrect as managers can set budgets at any level of activity, not just the budgeted activity level. Option D is also incorrect as it refers to the budgeted level of activity, which may not be the actual level of activity.

Why Are Flexible Budgets Powerful Control Tools