When should a company use an activity-based flexible budget with multiple cost drivers instead of a simple flexible budget with one cost driver?
A) when a significant portion of costs vary with only one cost driver
B) when a significant portion of costs vary with the number of units of output
C) when a significant portion of costs vary with the number of units of sales
D) when a significant portion of costs vary with cost drivers other than units of output

Question

Quizplus · Accepted Answer

An activity-based flexible budget with multiple cost drivers should be used when a significant portion of costs vary with cost drivers other than units of output. This is because using multiple cost drivers provides a more accurate representation of the different factors that affect the costs and allows for better planning and decision-making. Simple flexible budgets with one cost driver are appropriate when a significant portion of costs vary with only one cost driver, such as the number of units of output or sales.

When Should a Company Use an Activity-Based Flexible Budget with Multiple