Question

A flexible budget is appropriate for a:

Sales Commission Budget Direct Material Budget Variable Overhead Budget

A. Yes No Yes

B. Yes Yes Yes

C. No Yes No

D. No No No

E. No Yes Yes

Answer 1

A flexible budget is suitable for a Sales Commission Budget, Direct Material Budget, and Variable Overhead Budget, as they all vary with the level of sales or production volume. The correct answer to the question is B: Yes, Yes, Yes.

Step-by-step explanation:

The flexible budget is a budgeting approach that adjusts for varying levels of activity. It is particularly useful for costs that are closely related to sales levels or production volumes.

The question asks whether a flexible budget is appropriate for a Sales Commission Budget, Direct Material Budget, and Variable Overhead Budget.

• Sales commissions are typically variable costs as they move in direct proportion to sales. Therefore, a flexible budget is most appropriate for this type of budget.
• The Direct Material Budget may also benefit from a flexible budget, as the amount of materials used can fluctuate with production levels.
• Variable overheads, like utilities or indirect materials, can vary with production volume too, so a flexible budget is suitable here.

The correct response to the question is therefore option B: Yes, Yes, Yes. All three budgets mentioned can be effectively managed using a flexible budgeting approach.