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A company makes a budget for the smallest time period, so that management can find and adjust problems to minimize their impact on the business.

A company makes a budget for the smallest time period, so that management can find and adjust problems to minimize their impact on the business. Everything starts with the estimated sales, but what happens if the sales are more or less than expected? How does this affect the budget? What adjustments does a company have to make in order to compare the actual numbers to budgeted numbers when evaluating results? If production is higher than planned and has been increased to meet the increased sales, expenses will be over budget. But is this bad? If there is a difference between actual and budgeted, companies will create flexible budgets to allow budgets to fluctuate with future demand. Required: i. Explain in detail, what is flexible budget. (2 marks) ii. Discuss any two (2) differences between flexible budget and static budget. (4 marks) iii. Explain any two (2) advantages of flexible budget and static budget. (4 marks)

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