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

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Quizplus · Accepted Answer

This is because variable costs are directly proportional to the level of activity. If the level of activity decreases by 4%, the variable costs will also decrease by 4%. Therefore, to compare the budgeted variable costs with the actual variable costs, the budgeted variable costs need to be decreased by 4%.

If the Actual Level of Activity Is 4% Less Than