If the actual level of activity for a period is greater than the level budgeted before the period began, a performance report of operating costs based on a flexible budget will likely show more favorable than unfavorable variances.

Question

Quizplus · Accepted Answer

Generalizations cannot be made about the variances if a flexible budget is used. The direction of the variances will depend on how well costs were managed and controlled. On the other hand, if the performance report were based on a static budget, it is more likely that the variances will be unfavorable than favorable because the budget assumed a lower level of activity than the level actually achieved.

If the Actual Level of Activity for a Period Is