Kaufman Manufacturing Company

1. A static budget provides general guidelines to a company in terms of planning, but such a budget cannot take into account the effect that variable costs have on a budget. By using a single static figure for budget purposes, variances will be overstated and understated since sales and production are never likely to exactly match the budgeted figure. A flexible budget takes the variable costs into account by lowering the cost structure for lower production runs, and increasing it for higher production runs. Thus a manager should create a flexible budget in order to provide a more accurate planning too

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Category: Economics - K