When using a flexible budget, a decrease in activity within the relevant range: A) decreases variable cost per unit. B) increases the variable cost per unit. C) decreases total costs. D) increases total costs.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Please correct me if I am wrong and give the reason thoroughly.
When using a flexible budget, a decrease in activity within the relevant range:
A) decreases variable cost per unit.
B) increases the variable cost per unit.
C) decreases total costs.
D) increases total costs.
The correct answer is (C). My understanding that (within the relevant range) the variable cost is constant and Fixed cost is variable, which means it decreases if the level of activity decreased and vice versa when the level of activity increased. Therefore, the total cost decreases when the total activity within the range decreased.
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