Q11RQ - Horngren'S Financial And Managerial Accounting

Question

Question: How does the static budget affect the cost and efficiency variances?

Step-by-Step Solution

Answer

Answer

The cost and efficiency variances are not affected by the static budget prepared by the company's management

Step 1 Definition of static budget

The static budget is defined as the master budget which is prepared for one level of sales, it does not vary with the change in sales volume.

Step 2 Static budget affects the cost and efficiency variances

The efficiency and cost variances are the components or the parts of the flexible budget prepared by the company. The difference between the actual operating income and the budgeted operating income of the business is known as the flexible budget. But the static budget does not provide any such information at all. So, cost and efficiency variances are not affected by the static budget.