The management of XYZ Corporation is developing a flexible budget for the upcoming year. It was not pleased with the small amount of net income the budget showed at all sales levels and is contemplating using a less expensive material. This action reduces direct material cost by $1.50 per unit. 

What would be the effects on financial statements and a flexible budget if management takes this approach? Are there other factors that need to be considered?

Answer rating: 100% (QA)

If management of XYZ Corporation decides to use a less expensive material reducing direct material costs by 150 per unit it would have several effects ... View the full answer