The activity index used in preparing the flexible budget
A) is prescribed by generally accepted accounting principles.
B) is only applicable to fixed manufacturing costs.
C) is the same for all departments.
D) should significantly influence the costs that are being budgeted.

Question

Quizplus · Accepted Answer

The activity index used in preparing the flexible budget should significantly influence the costs that are being budgeted because it is based on the level of activity expected to occur and serves as a basis for estimating expenses. A higher level of activity will result in higher costs, and a lower activity level will result in lower costs. Therefore, it is important to choose an appropriate activity index that reflects the actual level of activity and its impact on costs. The activity index can be different for different departments depending on the nature of their operations. The choice of activity index is not prescribed by generally accepted accounting principles but is based on the specific circumstances of the organization.

The Activity Index Used in Preparing the Flexible Budget