Question

When using a flexible budget, a decrease in activity within the relevant range: Multiple Choice decreases variable cost per unit. increases variable cost per unit. decreases total costs. increases total costs.

Answer 1

Answer:

The correct answer is letter "D": decreases total costs.

Explanation:

Flexible budgets are those designed to tolerate a margin of variance in costs during the operations of a business. Typically, those changes arise in different points during a given period and are to be addressed as soon as they are noticed. In such a scenario, flexible budgets help businesses to update the budget computed at the beginning of operations by comparing the current activity with the expected activity of the firm.

If activity decreases, a flexible budget will face a decrease in the total costs of the operations.