Advanced One of the major practical difficulties of applying a financial reporting and control system based on flexible budgeting to a service or overhead depart¬ ment is in identifying and measuring an appropri¬ ate unit of activity with which to ‘flex’ the budget.

Required:

(a) Describe and comment on the desirable attri¬ butes of such a measure in the context of a valid application of flexible budgeting to a service centre or to a cost centre where standard costing is not applicable.

(c. 8 marks)

(b) Explain the difficulties in obtaining such a measure.

(c. 6 marks)

(c) List three suitable measures of activity, indi¬

cating the circumstances in which each would be suitable and the circumstances in which each of them would be misleading or unsuit¬ able.

(c. 6 marks)

(Total 20 marks) ACCA P2 Management Accounting