When a Flexible Budget Is Used, a Decrease in the Activity

question 40

Multiple Choice

When a flexible budget is used, a decrease in the activity level would

• A)increase total fixed costs.
• B)increase variable cost per unit.
• C)decrease variable cost per unit.
• D)decrease total costs.

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Definitions:

Contribution Margin

The difference between total sales revenue and total variable costs, used to cover fixed costs and generate profit.

Contribution Format

An income statement format that separates fixed and variable costs, facilitating analysis of the impact of sales volume on profit.

Unit Contribution Margin

The amount that the sale of one unit contributes toward covering fixed costs and then to profit, calculated as the selling price per unit minus the variable cost per unit.

Contribution Margin Ratio

A financial metric that shows the percentage of sales revenue remaining after variable costs are subtracted, indicating how efficiently a company can produce and sell products.