1. avatar says

    When preparing a flexed budget we adjust it according to the actual activity level & the reason is because we are using it for control purposes. Do we not need to adjust the budget for factors other than the activity level, such as inflation & government policies. Eg : if we budgeted on 5% inflation, but actually it was 10%, even if the activity level is the same material costs will be higher. This increased cost would be beyond the control of manager so his performance shouldn’t be evaluated on that basis, right?

    • Avatar of John Moffat says

      Budgets are often adjusted for all the factors you have listed.

      However a flexed budget is specifically adjusting just for the level of activity.

      (You will see when you get to variance analysis proper how we can separate factors over which the operational manager has control from other factors.)

  2. avatar says

    Dear Sir

    I just have quick question that stems from an example question I encountered on budgeting in the Kaplan exam kit.

    The question is in three parts: a (5 marks), b (10 marks) and c (5 marks) and is purely written. I understand that it may not be completely representative of an exam question, but, in answering such a question, if I put down some points in a seemingly sensible attempt to answer say part a, but the actual answer in the back of the book includes those points for part of the answer to say part b, would the examiner still give me the marks for those points?



    PS Hope that makes some kind of sense.

    • Avatar of John Moffat says

      You might get some credit, but only some.

      (a) and (b) would have been asking for different things and so given answers to (b) as part of the answer to (a) would suggest that you had misunderstood what was being asked.

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