If a company wishes to establish a factory overhead budget system in which estimated costs can be derived directly from estimates of activity levels,which type of budget should it prepare?

Question

Quizplus · Accepted Answer

A flexible budget is based on estimates of activity levels, and allows for adjustments to the budget depending on the actual activity level achieved. This is useful for a factory overhead budget system, as it allows for more accurate estimates of costs based on the level of activity in the factory, rather than a fixed budget which may not accurately reflect the actual costs. The other options, zero-based budget and discretionary budget, are not as directly related to activity levels, while a fixed budget would be less flexible and less accurate for a factory overhead system based on activity levels.

If a Company Wishes to Establish a Factory Overhead Budget