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The management of Hess, Inc., 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 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?

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The management of Hess Inc is developing a flexible budge.pdf

  • 1. The management of Hess, Inc., 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 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?