Which of the following is NOT a benefit of using flexible budgets?

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BlackTom AI · Accepted Answer

Question restated: Which of the following is NOT a benefit of using flexible budgets?

Option A: 'Flexible budgets provide a more relevant basis for performance evaluation by considering the actual activity levels achieved.' This is a correct description of flexible budgets. They adjust for actual activity so comparisons reflect what was actually produced or sold, making performance evaluation more meaningful.

Option B: 'Flexible budgets help identify areas of cost efficiency or inefficiency more accurately.' This is also true. By aligning the budget with actual activity, variances pinpoint where costs are behaving differently than expected for the actual level of output, improving accuracy in identifying efficiency issues.

Option C: 'Flexible budgets allow for dynamic adjustments to budgets based on real-world conditions.' This is another accurate statement. Flexible budgets are designed to adapt to changing conditions and activity levels, enabling timely revisions.

Option D: 'Flexible budgets eliminate the need for variance analysis since actual costs are compared to the original static budget.' This is incorrect. In fact, one key purpose of flexible budgets is to enhance variance analysis by comparing actual costs to a budget that reflects actual activity, rather than to the original static budget. Relying on the static budget defeats the purpose of flexibility and ignores activity-level differences, leading to misleading variances.

Summary: The statements in A, B, and C correctly describe benefits of flexible budgets, while D incorrectly asserts that variance analysis is unnecessary, which contradicts the very rationale for using flexible budgeting. The incorrect option is D because it misstates the role of variance analysis in the context of flexible budgeting.

ACCT10001_2025_SM1 Exam: Accounting Reports and Analysis (ACCT10001_2025_SM1)- Requires Respondus LockDown Browser

Which of the following is NOT a benefit of using flexible budgets?

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