When using a flexible budget, a decrease in activity within the relevant range:
A) decreases variable cost per unit.
B) increases variable cost per unit.
C) decreases total costs.
D) increases total costs.

Question

Quizplus · Accepted Answer

A flexible budget adjusts costs based on changes in activity levels. When activity decreases within the relevant range, total variable costs decrease because they are directly proportional to activity levels. However, the variable cost per unit remains constant. Total fixed costs remain unchanged within the relevant range, regardless of activity level. Therefore, a decrease in activity decreases total costs, making option C correct.

When Using a Flexible Budget, a Decrease in Activity Within