Question

Hoppy Corporation compares a monthly flexible budget based on actual operating results to a static planning budget prepared at the beginning of the month. When the actual level of activity is higher than expected, which of the following would typically be expected? Variable costs would show unfavorable variances O Varíable costs would show favorable variances O Fixed costs would show favorable varlances Fixed costs would show unfavorable variances. None of the above.

Answer 1

Solution 1:

When actual level of activity is higher than expected activity, Variable cost would show unfavorable variances because flexible budget variable expenses will be higher than static budget variable costs.

Hence first option is correct.

Solution 2:

Total expenses in flexible budget = ($41,300 + 31*$1,000) + (31*$600) + $35,200 = $126,100

Hence 2nd option is correct.

Solution 3:

Comparing actual results to a budget based on actual activity for the period is possible with the use of a flexible budget.

Hence 3rd option is correct.