A flexible budget requires careful study and classification of expenses into
Fixed, semi-variable and variable expenses
A flexible budget is prepared for a range of activity levels, not one fixed level, so that actual costs can be compared with the allowance for the activity actually reached.
This needs costs to be classified by behaviour: fixed costs stay the same over the relevant range, variable costs change in proportion to output, and semi-variable costs are split into their fixed and variable parts before they are budgeted.
The other classifications do not show how a cost moves with volume. Product versus period costs concerns inventory valuation, past versus current expenses concerns timing, and administrative, selling and factory expenses is a functional grouping. None of them lets the budget be flexed.
Hence, Fixed, semi-variable and variable expenses.
Important Questions from Cost and Management Accounting
Match List I with List II
List I
(Type of Costing)
List II
(Description)
A. Marginal Costing I. Integrated approach to determine product features, product price, product costs and product design that helps ensure a company to earn reasonable profit on new products. B. ABC Costing II. The amount of any given volume of output by which the aggregate costs are changed if the volume of output is increased by one unit. C. Target Costing III. Used when identical units are produced through an on-going series of production steps. D. Process Costing IV. Costing system in which costs being with tracing of activities and then to producing the product. Choose the correct answer from the options given below:
Which one of the following is PV ratio for the company?
Which one of the following is the break-even point in units for the company?
Which one of the following is the break-even point in terms of rupees?
Which one of the following is desired sales volume in units to earn a profit of Rs. 60,000?
