Question

In a flexible budget, what will happen to fixed costs as the activity level increases?A. The fixed cost per unit will remain unchanged. B. The fixed cost per unit will increase. C. Fixed costs are not included in a flexible budget. D. The fixed cost per unit will decrease. E. Total fixed cost will increase.

Answer 1

Answer:

D. The fixed cost per unit will decrease.

Explanation:

A flexible budget is a budget that adjusts or flexes with changes in volume or activity. For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount.

Fixed costs are costs that will remain constant within a relevant range. As the activity level increases, fixed cost per unit decreases.

Answer 2

Answer:

D. Fixed cost per unit will decrease.

Explanation:

In a flexible budget, those expenses that do not change within a sales range appear primarily as fixed costs. One example is maintenance and cleaning. The costs that change significantly based on sales appear primarily as variable costs and show as percentages of sales.