Activity Flexible Budgeting Provides a More Accurate Prediction of Costs

question 88

Multiple Choice

Activity flexible budgeting provides a more accurate prediction of costs than a traditional flexible budgeting approach because

• A) costs often vary with more than one driver.
• B) nonunit level drivers are often not highly correlated with direct labor hours.
• C) direct labor hours are often not measured correctly.
• D) costs often vary with more than one driver and nonunit level drivers are often not highly correlated with direct labor hours.
• E) costs often vary with more than one driver and direct labor hours are not correct.

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Definitions:

Average Total Costs

The total expenses incurred in the process of producing or offering a good or service, divided by the quantity of goods or services produced or offered.

Average Variable Costs

The sum of all variable production costs divided by the total number of units produced.

Output

The amount of something produced by a person, machine, or industry.

Average Cost

The total cost divided by the quantity produced, measuring how much on average each unit of output costs to produce.