Chapter 21, Problem 2QS

To determine

Flexible Budget:

A budget which is forecasted on the basis of variance in outputs which ultimately leads to variance in the relative costs and the revenue thereof is known as flexible budget. It is broader approach to plan budget as it can be altered at any time depending upon the needs of the business.

Fixed Costs:

Fixed costs are the costs which are uniform over a period of time and irrespective of variances in the output or any other operations of the firm remain constant .They are to be incurred by the businesses even if they do not indulge into their basic business activities.

Variable Costs:

Variable costs are directly linked to the operations of the business. It undergoes change with respect to changes in the volume of production of the firm over a period of time. It is directly proportional to variations in the business activities.

To explain: Flexible budget amounts of fixed and variable costs for 20,000 units.