Question

Which of the following is true of static budgets?

a. They are developed around a single level of activity.
b.They are very useful in preparing performance reports.
c.They provide expected costs for a variety of activity levels.
d.They provide budgeted costs for a variety of activity levels.

Answer 1

Static budgets are created for a single level of activity and are characterized by fixed costs like rent that do not change with production levels, making them useful for planning but less so for adaptable performance reporting.

Step-by-step explanation:

Among the options given regarding static budgets, the statement that is true is: a. They are developed around a single level of activity. Static budgets are planned around a predetermined, fixed level of activity without varying throughout the budget period. They do not fluctuate with changes in sales or production volume. Fixed costs, like the example of rent on a factory, are typical in a static budget because they remain constant regardless of the business's level of output. Static budgets are particularly useful for planning purposes but are less adaptive for performance evaluations when activity levels vary from the original assumptions.