Performance reports are prepared for:?

Question

A. Flexible budgets only.
B. Fixed budgets only.
C. Both flexible and fixed budgets.
D. Neither flexible nor fixed budgets.
E. Static budgets only.

Answer 1

A. Flexible budgets only

Flexible Budgets improve performance evaluation. They may be prepared for any activity level in the relevant range and show costs that should have been incurred at the actual level of activity, enabling “apples to apples” cost comparisons.

A fixed budget is made without regard to potential variations in business activity. Such budgeting might be effective for companies with low variable costs, but otherwise is likely to be inaccurate.

Static budgets are prepared for a single, planned level of activity. Performance evaluation is difficult when actual activity differs from the planned level of activity. Comparing static budgets with actual costs is like comparing apples and oranges.

Answer 2

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