Question

Consider the following statements about the flexible budget and the static budget for a manufacturing firm. Which of the following are likely to be true?

Both budgets will have the same total fixed manufacturing cost

Both budgets will have the same total direct material cost

Both budgets are constructed at the end of the financial period

Group of answer choices

Statement 1 only

Statement 2 only

Statement 3 only

Statement 1 and 2 only

Statement 2 and 3 only

Answer 1

Statement 1 only

Explanation : Total fixed manufacturing costs assigned is likely to be same in different levels of outputs, due to this in static budget and flexible budget , it ( total fixed manufacturing costs ) reamins unchanged.

In flexible budget , according to different levels of production, the total direct materials cost must be fluctuated . It doesn't remain same. So, all the options with (no 2 : statement ) is considered as false.

Static budget is planned ahead of time based on educated guess about future actual activities . So, it doesn't prepared at the end of financial year . But flexible budget prepared at the end of financial year to compare with actual performance. So, all the option with ( no 3 : Statement) is considered as false .