Business Decision Case The monthly sales volume of Shugart Corporation varies fr

Question

Business Decision Case The monthly sales volume of Shugart Corporation varies from 7,000

units to 9,800 units over the course of a year. Management is currently studying anticipated selling

expenses along with the related cash resources that will be needed. Which type of budget (flexible

or static) (1) should be used by Shugart in planning, and (2) will provide Shugart the best feedback

in performance reports for comparing planned expenditures with actual amounts? When Shugart’s

CEO asks you why it is advantageous to use a flexible budget instead of a static budget, what is

one example you could give him?

Explanation / Answer

   Flexible budgets are capable of adapting to change in assumptions used to create the budget during the planning process of management. The biggest advantage of flexible budget over static budget is it adaptability to the change in market conditions.

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