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Can anyone please tell me why did the examiner use the flexible budgeting in this question as the question doesn’t specify anything. For both budgeted income and expenditure actual capacity utilization is used. Do we have to do the same in all this type of question? Or the examiner indicates anything in the question.
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The 2009 Dec Q1 has a highly similar question and relevant discussion on your query could be found at that thread. The 2009 question is more difficult because it does not give you any clue on working a flex-budget.
What I would like to add is the choice of activity level depends on the budget target and assumption made at the time of planning, not necessarily to be sales level or production level.
Concept of flexed budgeting was also examined in Dec 09! It’s quite basic and hence easy to forget. Make sure you understand it well.
A good answer has been provided by John Moffat in P5 ask the tutor forum.
regards
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