Rainbow Inc. recently appointed Margaret Joyce as vice president of finance and asked her to design a new budgeting system. Joyce has changed to a monthly budgeting system by dividing the company's annual budget by twelve. Joyce then prepared monthly budgets for each department and asked the managers to submit monthly reports comparing actual to budget. A sample monthly report for Department A is shown below. Rainbow Inc. Monthly Report for Department A Actual 1.000 Budget 900 Variance 100F $2,800 4.800 4,250 $2,700 4.500 4,050 $100U 3000 2000 Units Variable production costs Direct material Direct labor Variable factory overhead Fixed costs Depreciation Taxes Insurance Administration Marketing Total costs 3,000 1,000 1,500 1.100 1.000 $19.450 2,700 900 1,350 990 900 $18.090 3000 100U 150U 1100 100U $1.3600 This monthly budget has been imposed from the top and will create behavior problems. All of the following are causes of such problems except a. the use of a flexible budget rather than a fixed budget. b. top management authoritarian attitude toward the budget process. c. the inclusion of non-controllable costs such as depreciation. d. the lack of consideration for factors such as seasonality. 57 When compared to static budgets, flexible budgets a. offer managers a more realistic comparison of budget and actual fixed cost items under their control. b. provide a better understanding of the capacity variances during the period being evaluated. c. encourage managers to use less fixed costs items and more variable cost items that are under their control. d. offer managers a more realistic comparison of budget and actual revenue and cost items under their control