Question

A manufacturing company experiences frequent fluctuations in production volume due to seasonal demand. Management wants a budgeting system that revises expected costs and revenues automatically whenever the level of activity changes, so that meaningful performance comparison can be made. Which type of budget would best serve this purpose?

Q: Answer-A manufacturing company experiences frequent fluctuations in production volume due to seasonal deman...

A flexible budget is a budget that is adjusted to reflect the actual level of activity, allowing for a more accurate comparison of budgeted and actual costs at different output levels. It is useful when output fluctuates as it e nables fair performance comparison and s eparates fixed and variable costs. Note Fixed budget is used for only one level and is not adjustable Master budget is used for overall planning and not activity-based adjustment Cash budget helps in liquidity planning only Zero-based helps in expense justification, not flexibility