Question

The accountant for Harper Company is preparing a flexible budget. The activity index is machine hours and the relevant range is 4,000 hours to 26,000 hours. The increment of activity chosen for the flexible budget
is largely a matter of judgment.
should be the same as those used by others companies throughout the industry.
is determined by the Cost Accounting Standards Board.
should be no smaller than 100 hours and no larger than 1,000 hours.
is largely a matter of judgment.
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Answer 1

(B)is largely a matter of judgment. The Harper Company's accountant is creating a flexible budget. Most of the time, the amount of activity selected for the flexible budget comes down to personal preference.

In order to account for anticipated volatility, flexible budgets are simply budgets that may be changed when income and expenditure changes occur throughout the course of the fiscal year. Companies initially take into consideration expected fixed expenses, or at least those that they don't anticipate changing as the year goes on. They then take into account variable expenses that fluctuate, frequently analyzing costs to make in-the-moment modifications. This makes it possible for businesses to adapt to changing conditions throughout the year, such as a sharp rise in demand for goods or services or a seasonal increase in labor expenses. Flexible budgets involve some creativity and extra time to account for speculative expenses, but they enable organizations to adjust to shifting external circumstances.

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