Question

Consider the following statements:

i. differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.
ii. if the actual level of activity differs from what was planned, it would be misleading to compare actual costs to the static, unchanged planning budget.
a. I is true; II is true
b. I is true; II is false
c. I is false; ∥ is true
d. I is false; ∥ is false

Answer 1

The correct answer is b. I is true; II is false. Statement I explains the purpose of the differences between the static planning budget and the flexible budget, while statement II is incorrect because it is not misleading to compare actual costs to the static planning budget.

Step-by-step explanation:

The correct answer is b. I is true; II is false.

Statement I is true because the differences between the static planning budget and the flexible budget reveal what should have happened due to the actual level of activity deviating from the planned level.

For example, if the actual level of activity is higher than planned, the flexible budget would show higher costs compared to the static planning budget.

Statement II is false because it is not misleading to compare actual costs to the static planning budget. The static planning budget serves as a benchmark or reference point to evaluate the actual results, allowing for meaningful analysis and identification of deviations from the plan.