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

question 132

Multiple Choice

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.

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Definitions:

Human Capital

The stock of competencies, knowledge, social and personal attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

Physical Capital

Assets that are tangible, such as machinery, buildings, and equipment, which are used in production to create other goods or services.

Production Function

A mathematical model that describes the relationship between inputs used in production and the output of goods or services.

Constant Returns

A situation in which the rate of increase in output is directly proportional to the increase in inputs in the production process.