All 34 Flexible Budgets questions
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What is the relevant range and why does it matter for flexible budgets? What is the difference between a flexible budget and a rolling budget? What is the purpose of a flexible budget in performance evaluation? How do fixed costs behave when a budget is flexed? How does a flexible budget improve on a fixed budget for cost control? What is meant by 'flexing' a budget? Give a simple example of flexing a budget. What is the allowed cost (budget allowance) in flexible budgeting? How do you prepare a flexible budget? What is the difference between fixed, variable, and semi-variable costs in flexible budgeting?
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Budgeting & Forecasting › Flexible Budgets

What activity measure should be used to flex a budget?

Beginner

Answer

Use the activity measure (cost driver) that best explains the variable cost behavior—units produced, machine hours, labour hours, or another driver. Different cost pools may need different drivers. Choosing a driver that truly drives the cost gives an accurate flexed allowance; a poor driver misstates it.
Real-world example Machine-related overheads are flexed on machine hours, while packaging cost is flexed on units.

Common follow-ups: Why must the driver explain the cost? | Can different costs use different drivers?

Types of Budgets Variance Analysis Flexible Budgets
All 34 Flexible Budgets questions