Chapter 23, Problem 2QS

To determine

Concept Introduction:

In a business organization it is always good to start the year with a budget. Though many companies use static budget it is very much advisable to have flexible budget. A flexible budget is a budget which provides for changes in the volume of operations whereas a static budget is rigid and remains same for any level of operations. Flexible budget is more advanced form of budget used for decision making purpose by the management.

From the base budget we have to identify variable and fixed expenses separately. Divide the total variable expense from the budgeted production to arrive at per unit cost. Fixed expense remains the same up to a particular level. Now flexible budget can be prepared for any activity level.

To Prepare: Flexible Budget