Question

Jared expects to charge $60 per hour for his industrial maintenance business during the following year. He expects to reach 50,000 hours at that price. Jared's partner disagrees with the estimate and expects closer to 40,000 hours. What should Jared do when preparing the budget for the year?
A. Create two master budgets, one at 50,000 hours and one at 40,000 hours.B. Create only one budget at the more optimistic volume of 50,000 hours.C. Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours.D. Create a volume budget based on actual performance.

Answer 1

Answer: C. Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours

Explanation: Flexible budget as the name implies, refers to a budget plan which isn't fixed or static, it allows for variation or changes in amount or volume of activity in the budget plan. The flexible budget can be employed in the scenario above in other to adequately contain the discrepancy which exist between Jared and his partner. Since Jared estimates about 50,000 hours at the $60 price and his partner envisages close to 40,000 hours at the price, a flexible budget showing range of outcomes between 40,000 to 50,000 an be employed in other to contain both estimated figures.