The Basic Difference Between a Master Budget and a Flexible

question 147

Multiple Choice

The basic difference between a master budget and a flexible budget is that a:

• A) flexible budget considers only variable costs but a master budget considers all costs.
• B) flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard.
• C) master budget is for an entire production facility but a flexible budget is applicable to single departments only.
• D) master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

---

Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or age.

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets (patents, copyrights) and liabilities.

Prepaid Insurance

Prepaid insurance refers to insurance premiums that have been paid in advance and are recorded as a current asset on the company's balance sheet until the period the insurance coverage relates to occurs.

Adjusting Entry

An adjusting entry is made in the accounting records at the end of a period to allocate income and expenditures to the appropriate period.