Question

What assumption is implicitly made about cost behavior when a budget is directly compared to actual results? Why is this assumption questionable?

Answer 1

The assumption implicitly made about cost behavior when a static planning budget is directly compared to actual results is it assumes that costs (and revenues) should not change with a change in the level of activity. This assumption is valid only for fixed costs.

To calculate a static planning budget, surely subtract the actual spend from the planned price range for every line object over the given time period. Divide by using the authentic price range to calculate the share variance.

For instance, underneath a static planning budget, an organization might set an anticipated cost, say $30,000 for a marketing marketing campaign, during the period. it's far then up to managers to stick to that price range no matter how the fee of generating that campaign absolutely tracks at some point of the length.

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What assumptions are implicitly made about cost behavior when a static planning budget is directly compared to actual results? Why is this assumption questionable?

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