Question

2) The amount reported for *fixed overhead* on the *static budget* is also reported ________.

A) as actual fixed costs
B) as allocated fixed overhead costs
C) as flexible budget costs
D) as committed variable costs

Answer 1

Fixed overhead reported on a static budget is also reported as allocated fixed overhead costs. These costs, such as rent, do not change with production levels, and allocating them helps with pricing and understanding production costs.

Step-by-step explanation:

The question refers to how the fixed overhead costs reported on a static budget are utilized in other financial aspects. When you create a static budget, the amount reported for fixed overhead is also reported as allocated fixed overhead costs. Fixed overhead costs, such as rent on a factory or a retail space, do not vary with the level of production, making them constant costs within the budget period. Allocating these costs is essential for determining the price of goods and services and for understanding the full cost of production. The concept of "spreading the overhead" means dividing the total fixed costs by the quantity of output produced to determine the average fixed cost per unit. As production increases, the average fixed cost decreases since the same fixed cost is spread over more units.