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Budget and budgetary control

Costing

Sir, in this question the foreman is not eligible for bonus as per the flexible budget. But he is eligible for bonus as the per the fixed budget. Here, why we are comparing the actuals with flexible budget and not with the fixed budget though they didn't mention anywhere in the question? How do we know that we should prepare flexible budget? Whether we can answer that the foreman is eligible for bonus according to the fixed budget as it is aslo a type of budget under the category of capacity wise budget?

Viveka R

CA Inter

★ 890

22-Jul-20 16:03

356

Answers (1)

Suitability for flexible budget: 1. Seasonal fluctuations in sales and/or production, for example in soft drinks industry; 2. a company which keeps on introducing new products or makes changes in the design of its products frequently; 3. industries engaged in make-to-order business like ship building; 4. an industry which is influenced by changes in fashion; and 5. general changes in sales. And since the this is due to either change in sales, we consider Flexible budget. You can answer that the foreman is eligible as per fixed budget in a note in addition to solving the question as per fixed budget method.