When the flexible budget amount is $7500 and the sales volume variance is $6500, the static budget amount would be __________?
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Answer: C. $1,000
Explanation
Static budget amount is calculated as the flexible budget minus the sales volume variance. Subtracting six thousand five hundred from seven thousand five hundred gives one thousand dollars. This reconciles dynamic flexible budget figures back to original static budget baselines. Static budgets are prepared for a single planned level of sales activity. Flexible budgets adjust planned revenues and costs to actual sales volume levels. Sales volume variance measures the profit impact of selling a different volume than planned.
Controllers use budget reconciliations to analyze variances across different planning horizons. Management evaluates sales volume variances to understand market demand fluctuations. Budget analysis helps organizations improve future strategic planning and forecasting. Option A represents the flexible budget amount without adjusting for the variance. Option B represents the sales volume variance rather than the calculated static budget. Option D overstates the static budget by adding the variance instead of subtracting.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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