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Can any one please explain to me how the examiner solved the budgeted income statement question??
If we see the model answer the examiner solved it using flexible budget although it is not mentioned in the question to use any method, so if we have any question in future for budget we directly use flexed budgeting???
In addition, for income side from the income statement, for calculating the flexible budget income the examiner didn’t take actual input why???
Thanks alot for your help
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Many students think that a performance statement is to compare actual with static budget. it is a common report found in any computer package. However, the activity level of static budget and actual are virtually impossible to be identical. In other words, we are not comparing apple to apple in doing so.
In any performance statement, particularly in examination, we should compare the actual with a budget flexed to the actual activity level (i.e. the activity level is based on the number of students of each funded type enrolled in each course) in order to make a meaningful analysis.
The examiner expects the students to understand this logic so that he will not explicitly to prepare a flexible budget. In addition, you have also to know that one of the purposes of calculating the variances (learnt in F2 and F5) is to reconcile between actual and the flexible budget, not between the actual and the static budget.
Finally, we can prepare the performance statement on absorption costing basis or on marginal costing basis, depending on the requirement of the question.Thanks alot for the response. But still am not sure regarding my second question if you can clear it more?
why the examiner didn’t take the actual input for income as the flexible budgeting takes both sides from income and costs?????
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What do you mean on “taking the actual input for income”?. In addition, please clarify “the flexible budgeting takes both sides from income and costs”.
In the question they ask us to prepare income statement. For us to prepare flex income statement we should compare the actual with a budget flexed to the actual activity level (i.e. the activity level is based on the number of students of each funded type enrolled in each course). In the examiner solution, he didn’t take these basis for income side from the income statement. He just took it for expense side from income statement. For income side he used 6900 students in total while in expense side he used 7200 students ??? Thats why am shocked. Plzzzzzz clear it to me sosologos. Thanks in advance
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ME too, I am also confused for the anwser.
if we should use flexied buget for expenses, the income also should apply, in my opinion.- Topics: 0
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In what basis we flex a budget is a judgement, not a rule. We should weigh the relative advantages and disadvantages of flexing the number of students in the income side. In this case, the budget and actual fees are the same. If we also flex the number of students at the income side, the flexed budget and actual income will be identical. Therefore, it is not desirable to do so because the under-achievement of enrollment problem will be hidden.
In addition, the theoretical capacity of the school is to accommodate 8,000 students and the budgeted target was 7,200. the management would apparently like to have the income variance revealed for investigation.
Of course, we cannot guess in the examination room what the examiner will think. If you find that there are alternative ways to flex the income side in examination, you should write clearly in your answer book the rationale for choosing one method but not choosing the others. If you cannot find any good reason to support your choice, it is highly likely that your choice would be wrong. Conversely, it is illogical not to choose a method with good grounding. The marker will consider your rationale and grant you marks.
I totally agree with your comment sosologos and thanks alot for your comments.
But i disagree with you in the part regarding identical income as in most question solved even in Open tiution notes and other questions from revision kit or old exams it was matching in income side so it is not an issue. I wish this type of question won’t come this time
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It is good that you have a sense of disagreement. In the professional stage, it is very likely that no one single answer for the questions. As a candidate, the most important point is to state your assumption and rationale clearly. It is futile to guess what would be in the model answer.
Hi mido,
I think you can use actual student no but use the budgeted mix, and should give a more meaningful comparisons and also consistent with Pilot Paper Q1 answer.
sosologos is correct – at the professional level there is not always just one correct answer. You are expected to state assumptions.
In this question, the examiner specifically asked for a comparable budget, and so for the costs there is not much argument – to be comparable it only makes sense here to compare actual with flxed.
For the income there is more room for debate – there is a logic to compare actual with budget, or to compare actual with flexed, or actual numbers using budget mix. They would all get credit – the most important thing is to state your assumptions/rationale.
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