P1 Exam Dumps : Management Accounting

600 units

5,400 units

1,000 units

5,000 units

A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.

If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.

If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.

Reporting against a fixed budget tells management nothing about the efficiency of operations.

If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.

The fixed budget however provides more insight into actual performance.

Co-ordination

Communication

Profit maximisation

Diversification

Authorization

Consolidation