Question

Which of the following is a deficiency of using a static planning budget in performance reports?

A.The report compares actual revenues and costs at one level of activity with budgeted revenues and costs at the same level of activity
B.The report compares actual revenues at one level of activity with budgeted revenues at the same level of activity
C.The report compares actual revenues and costs at one level of activity with budgeted revenues and costs at a different level of activity
D.The report compares actual costs at one level of activity with budgeted revenues at a different level of activity

Answer 1

Option D is the deficiency of using static planning budget.

Step-by-step explanation:

Static planning budget is a concept where actual costs and budgeted revenue are compared at different level of activity. This is the deficiency which has been highlighted by many financial analyst according to them it’s like comparing apple and oranges. Instead of comparing costs revenue should be compared. A comparison of revenues and costs can lead to incorrect decisions. Budged revenues and costs are a totally different concept than actual cost and revenues, that is why using budged revenues and actual cost for static planning will lead to erroneous conclusion.