Multiple Choice QuestionManagement uses a(n) ______ budget to establish the standard overhead rate.Multiple choice question.fixedflexiblemaster

Identifying the Correct Choice

1. Understanding Budget Types

   • Fixed Budget: This type of budget remains unchanged regardless of the level of activity. It is useful for setting baseline expectations but does not account for variability.
   • Flexible Budget: This budget adjusts with changes in volume or activity level, providing a more realistic view of costs based on different levels of output.
   • Master Budget: This comprehensive budget consolidates all individual budgets across an organization, including various components like sales, production, and overhead.

2. Analyzing the Question

   • The question asks about the type of budget that management uses to establish a standard overhead rate. Typically, a standard overhead rate is determined prior to the commencement of production and is based on expected levels of activity.

3. Determining the Correct Answer

   • Since standard overhead rates are fixed at the budgeted level of activity, the most appropriate term here is fixed budget.

Final Answer

The correct answer is fixed.