Question

Flexible budgeting is limited because it is highly dependent upon an accurate identification of :

I.fixed cost

II.variable cost per unit

A I only

B II only

C Both I and II D

D Neither I nor II

explain answer please

Answer 1

Flexible budgeting means budgeting based on different level of production. Hence, in flexible budgeting fixed cost remain same unless production above normal level of production done. And total variable cost varies according to level of production but variable cost per unit remains same.

Fixed cost and variable cost per unit both are highly important for accurate identification in flexible budgeting. Because both fixed cost and variable cost per unit remain same for different level of production.