Variances for Variable Costs Will Be Misleading When the Planned

question 23

Multiple Choice

Variances for variable costs will be misleading when the planned output differs from budgeted output.A solution to this problem would be

• A) calling all costs fixed.
• B) to use flexible budgeting.
• C) better prediction of output.
• D) to eliminate the budgeting process.

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Definitions:

Opportunity Cost

The value of the next best alternative forgone as a result of making a decision, reflecting the trade-offs of choosing one option over another.

Comparative Advantage

The ability of an individual, company, or country to produce a good or service at a lower opportunity cost than competitors, underpinning international trade.

Specialization

The practice of focusing on and becoming expert in a particular subject or skill, in economics, it refers to individuals or firms concentrating on the production of limited kinds of goods or services.

Absolute Advantage

The ability of an individual, company, or country to produce a good or service at a lower cost per unit than others.