Activity flexible budgeting provides a more accurate prediction of costs than a traditional flexible budgeting approach because
A) costs often vary with more than one driver.
B) nonunit level drivers are often not highly correlated with direct labor hours.
C) direct labor hours are often not measured correctly.
D) costs often vary with more than one driver and nonunit level drivers are often not highly correlated with direct labor hours.
E) costs often vary with more than one driver and direct labor hours are not correct.

Question

Quizplus · Accepted Answer

The statement that "costs often vary with more than one driver" implies that a traditional flexible budgeting approach that uses only one driver, such as direct labor hours, may not accurately predict costs. The statement that "nonunit level drivers are often not highly correlated with direct labor hours" further supports this idea. Therefore, using activity flexible budgeting, which considers multiple drivers, provides a more accurate prediction of costs.

Activity Flexible Budgeting Provides a More Accurate Prediction of Costs