Why does activity flexible budgeting provide a more accurate prediction of costs than a traditional flexible budgeting approach?
A)Costs often vary with more than one driver, and direct labour hours are not correct.
B)Unit-level drivers are often not highly correlated with direct labour hours.
C)Direct labour hours are often not measured correctly.
D)Costs often vary with more than one driver, and non-unit-level drivers are often not highly correlated with direct labour hours.

Question

Quizplus · Accepted Answer

Activity flexible budgeting takes into account multiple drivers that can impact costs, not just direct labor hours. Traditional flexible budgeting typically only uses unit-level drivers, which may not be highly correlated with direct labor hours or other non-unit-level drivers that can impact costs. Therefore, activity flexible budgeting provides a more accurate prediction of costs by considering all relevant drivers.

Why Does Activity Flexible Budgeting Provide a More Accurate Prediction