Which of the following is NOT true regarding variable budgets?

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Question: Which of the following is NOT true regarding variable budgets?

Option 1: 'Variable budgets are designed to be flexible.' This is true because the core idea of a variable budget is to adapt to changes in activity levels or other drivers, rather than remaining fixed.

Option 2: 'Variable budgets address the shortcomings of fixed budgets.' This statement is generally accurate; variable budgets aim to overcome inflexibility and mismatches between planned and actual activity that fixed budgets can exhibit.

Option 3: 'This type of budgeting is based on predictions rather than reactions.' This is not true for variable budgeting. Variable budgets are designed to respond to actual levels of activity and other drivers, making them reactions-based rather than solely prediction-based. If a budget were based mainly on predictions, it would resemble a fixed or static budget rather than a true variable budget.

Option 4: 'The expense portion of the operating budget is dependent on the revenue portion.' In a variable budgeting framework, expenses often vary with revenue or activity, so the expense side can be tied to the level of activity or revenue, which aligns with how variable budgets operate.

Overall, the statement identified in Option 3 contradicts the fundamental nature of variable budgets, which are constructed to be flexible and responsive to actual activity rather than solely forecast-driven.

11:709:448:01 FOOD PROD MGMT FINAL Exam - F25- Dec 18- Requires Respondus LockDown Browser

Which of the following is NOT true regarding variable budgets?

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