When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.
Question
When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.
Solution
When preparing a flexible budget, variable costs are expressed as a constant amount per unit of activity, and fixed costs are expressed as a constant total amount.
Here's the step by step explanation:
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Variable Costs: These are costs that change in direct proportion to the level of activity or volume. For example, the cost of raw materials will increase as more units are produced. In a flexible budget, these costs are expressed as a constant amount per unit of activity. This means that for each unit of activity (like each unit produced), the variable cost is the same.
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Fixed Costs: These are costs that do not change with the level of activity or volume, at least not in the short term. Examples include rent, salaries, and insurance. In a flexible budget, these costs are expressed as a constant total amount. This means that no matter how many units of activity there are, the total fixed cost remains the same.
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