Question

A flexible budget is prepared using?

1) the same sales price per unit that was used to prepare the static budget.
2) a different amount of expected sales volume than was used to prepare the static budget.
3) the same variable cost per unit that was used to prepare the master budget.
4) All of the answers are correct.

Answer 1

A flexible budget is prepared by keeping the sales price per unit and variable costs per unit consistent with the static budget while adjusting for different expected sales volumes.

Step-by-step explanation:

A flexible budget is prepared using:

1. The same sales price per unit that was used to prepare the static budget.
2. A different amount of expected sales volume than was used to prepare the static budget.
3. The same variable cost per unit that was used to prepare the master budget.

All of the answers are correct because a flexible budget is designed to change and adapt based on actual activity levels, which include the sales volume. The sales price per unit and variable cost per unit generally remain consistent with what was estimated in the master or static budget; it's the volume and cost application that flex to match real performance.

Total costs, including both fixed costs and variable costs, aid firms in making profit-maximizing decisions. For a deeper understanding of cost behaviors in different production levels, it's important to calculate average total cost, average variable cost, and marginal cost. A flexible budget, therefore, can be a useful tool in managing these costs in the long run because it adjusts to different output levels.