In a flexible budget, how are variable costs treated?
Practice Questions
1 question
Q1
In a flexible budget, how are variable costs treated?
They remain constant regardless of activity level
They change in total with changes in activity level
They are ignored in the budget
They are fixed at the highest level of activity
Variable costs in a flexible budget change in total with changes in activity level.
Questions & Step-by-step Solutions
1 item
Q
Q: In a flexible budget, how are variable costs treated?
Solution: Variable costs in a flexible budget change in total with changes in activity level.
Steps: 5
Step 1: Understand what a flexible budget is. A flexible budget adjusts based on the actual level of activity or output.
Step 2: Identify what variable costs are. Variable costs are expenses that change in total when the level of activity changes.
Step 3: Recognize that in a flexible budget, as the activity level increases or decreases, the total variable costs will also increase or decrease accordingly.
Step 4: For example, if production goes up, variable costs like materials and labor will increase because more resources are needed.
Step 5: Conversely, if production goes down, variable costs will decrease because fewer resources are needed.
