If a static budget forecasted 100,000 units to be sold in the fiscal year and actual units sold amounted to 120,000, what assumption could be made under a flexible budget process?
A)Since the actual volume exceeds the budgeted volume, there is an unfavorable volume variance for output.
B)Fixed costs would increase in the flexible budget due to the volume change.
C)The effectiveness of the manager is in question.
D)Variable costs will be higher than projected in the static budget due to the volume variance.

Question

Quizplus · Accepted Answer

A flexible budget adjusts costs based on changes in volume or activity levels. Since actual sales exceeded forecasted sales, variable costs, which vary with production volume, would indeed be higher than initially projected in the static budget. Fixed costs, on the other hand, would not increase simply due to a volume change, as they remain constant regardless of the level of output. Therefore, the assumption that variable costs will be higher is correct, reflecting the direct relationship between production volume and variable costs.

If a Static Budget Forecasted 100,000 Units to Be Sold