Economics · Management Accounting and Budgetary Control
A commercial bank is evaluating a loan application for 'Precision Engineering Ltd.,' which manufactures specialized machine parts. The company provides a budget for the 2026-2027 financial year, including detailed schedules for: Raw Material Consumption based on expected production (2,00,000 units), Direct Labor Hours, and corresponding overhead costs. The production manager's salary is listed as a fixed cost, but the sales team's commission is 5% of estimated revenue. This comprehensive system sets standard benchmarks for inputs and outputs to hold departmental managers accountable for variance analysis. Which type of budgeting/costing system is primarily being utilized here for cost control and efficiency assessment?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Master Budgeting, because it consolidates all subsidiary budgets into a single, summary financial plan.
- 2Flexible Budgeting, because the budget can be adjusted to any level of activity within a relevant range.
- 3Functional Budgeting, because it separately covers all key functional areas like Sales, Production, and Administration.
- 4Standard Costing and Budgeting, because it sets cost and output standards for manufacturing activities and forms the basis for variance analysis to assess departmental efficiency.✓
Correct answer
Standard Costing and Budgeting, because it sets cost and output standards for manufacturing activities and forms the basis for variance analysis to assess departmental efficiency.
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