Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 2

"The flexible budget for costs is computed by multiplying average total cost at the master budget activity level by the activity at some other level." Is this true or false? Why or why not?

Step 1 of 2

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Flexible budget

Flexible budget is not static cost it shows the different budgeted cost, revenue and profits at different activity level. The activity level of business can never be static and cannot be predicted with certainty, hence flexible budget helps to evaluate the actual performance against the predicted activity level. Flexible budget divides the cost into two components like fixed and variable costs, where variable cost changes with the change in the activity level.