One of the major practical difficulties of applying a financial reporting and control system based on flexible budgeting to a service or overhead department is in identifying and measuring and appropriate unit of activity with which to 'flex' the budget.

Required:

(a) Describe and comment on the desirable attributes 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) Ust three suitable measures of activity, indicating the circumstances in which each would be suitable and the circumstances in whrch each of them would be misleading or unsuitable