Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true?
A)Variable costs would show favorable variances.
B)Variable costs would show unfavorable variances.
C)Fixed costs would show favorable variances.
D)Fixed costs would show unfavorable variances.

Question

Quizplus · Accepted Answer

When the actual level of activity is less than budgeted, variable costs would show favorable variances because the costs that were planned for higher production or sales did not occur due to the lower activity level, resulting in lower variable costs. However, fixed costs would show unfavorable variances as they are typically fixed in nature and do not change with changes in the level of activity.

Hoppy Corporation Compares Monthly Operating Results to a Static Budget