If the actual level of activity is 4% more than planned,then the variable costs in the static budget should be increased by 4% before comparing them to actual costs.

Question

Quizplus · Accepted Answer

Variable costs are directly proportional to the level of activity, so if the actual level of activity is 4% more than planned, then the variable costs would also increase by 4%. Therefore, to compare actual costs with static budgeted costs accurately, the variable costs in the static budget should be increased by 4%.

If the Actual Level of Activity Is 4% More Than