ACCA Applied Knowledge · Management Accounting · Flexible budgets
Which of the following best describes the treatment of fixed costs when a budget is flexed to a higher activity level within the relevant range?
Total fixed costs remain unchanged when a budget is flexed within the relevant range. Because the total stays constant, the fixed cost per unit falls as activity rises. Only variable costs, and any stepped costs crossing a threshold, change.
- AFixed costs per unit remain unchanged
- BTotal fixed costs remain unchangedCorrect
- CTotal fixed costs increase in proportion to activity
- DFixed costs are removed from the flexed budget
Explanation
Within the relevant range, total fixed costs stay constant when activity changes, so fixed cost per unit falls as output rises. Treating fixed costs as varying with activity is the typical error.
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