Week 8 CheckPoint - activity for each cost 3. Identify the...

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ACC/220 Week 8 CheckPoint: Flexible Budgets Respond in 200 to 300 words, to the following: o What is a flexible budget? o What are the steps to developing a flexible budget? o What information is found on a flexible budget report? o How is that information used to evaluate performance? A flexible budget is a series of static budgets at different levels of activity. A flexible budget is a budget that adjusts to alteration in the level of activity. The flexible budget is useful because the flexible budget doesn’t remain at one amount regardless of the volume of activity. The steps to developing a flexible budget, the management should follow are the following: 1. Identify the activity index and the relevant range of activity 2. Identify the variable costs and determine the budgeted variable cost per unit of
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Unformatted text preview: activity for each cost 3. Identify the fixed costs and determine the budgeted amount for each cost 4. Prepare the budget for selected increments of activity within the relevant range The information that is found on a flexible budget is the same as what the master budget consists of but it differs because of the activity level. The information used to evaluate performance on a flexible budget is a better tool because it responds to changes in activity. When performance evaluation is based on a static budget, there is little incentive to drive sales and production above anticipated levels because increases in volume tend to produce more costs and unfavorable variances. The flexible budget based performance evaluation provides an incentive to help drive up sales and production....
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