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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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To create a meaningful performance report, actual costs and expected costs should be compared

  1. a. at the actual level of activity.
  2. b. weekly.
  3. c. at the budgeted level of activity.
  4. d. at the average level of activity.
  5. e. hourly.

To determine

Identify the level of activity at which comparison of actual cost and expected cost should be conducted, to create a meaningful performance report.

Explanation

Flexible Budgets:

Flexible budgets are prepared for various levels of activities or outputs. This enables the entity to know the result for the selected level of activity.

a.

Expected cost for actual units should be compared with actual cost to obtain reasonable variances for performance appraisal. In case, expected costs are computed for 300 units and actual units are 500 then comparison of total expected cost with total actual cost would not show appropriate results. Therefore, this is the correct option.

b.

To create a meaningful performance report, actual and expected costs should be compared at the actual level of activity. Controlling targets are generally developed on monthly or quarterly basis...

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