CAF-7 · Chapter 11 · Question 9 of 15
A business sets a budget based on the assumption it will produce 10,000 units. However, it actually produces 12,000 units. To fairly evaluate the production manager's cost control performance, the original budget should be adjusted to reflect the costs expected for 12,000 units. This adjusted budget is known as a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Flexed (Flexible) budget
Explanation
A flexed budget adjusts the original budgeted revenues and variable costs to reflect the actual volume of activity achieved. This provides a fair benchmark for performance evaluation and variance analysis.
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