ICAEW BIP · Chapter 6 · Question 8 of 11
What is a fixed budget?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) A budget prepared for a single, planned level of activity, which is not adjusted when actual activity differs
Explanation
A fixed budget is set for one planned level of activity. It is useful for planning but can be misleading for control, because comparing actual results at a different activity level with it mixes up volume effects and efficiency effects. A budget designed to change with activity is a flexible budget.
More Budgeting: purposes and approaches MCQs
- Q10A manager compares forecast results for the rest of the year with the budget and takes action now to correct an expected shortfall before…
- Q11In which situation is an imposed (top-down) budget most likely to be appropriate?
- Q1Which of the following is NOT normally a purpose of budgeting?
- Q2A company can sell all it produces, but the supply of a specialist component is restricted. In this situation, what is the principal…
- Q3What is the main weakness of incremental budgeting?