A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A) substantial fixed costs.
B) substantial variable costs.
C) planned activity levels that match actual activity levels.
D) no variable costs.

Question

Quizplus · Accepted Answer

A static budget assumes that costs remain the same regardless of changes in activity levels, which is only appropriate if a company has primarily fixed costs. If a company has substantial variable costs, a static budget will not accurately reflect the impact of changes in activity levels on costs and revenues, which makes it inappropriate for evaluating a manager's effectiveness.

A Static Budget Is Not Appropriate in Evaluating a Manager's