Question

7) Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________.

A) by the end of a budget period
B) by the middle of a budget period
C) on a day-to-day ongoing basis
D) at the start of a budget period

Answer 1

Decisions regarding fixed overhead costs are typically made at the start of a budget period. These costs are considered sunk costs and remain constant throughout the budgeting timeframe. While variable costs can change with production levels, fixed costs are predetermined and critical for budgeting.

Step-by-step explanation:

Most of the decisions determining the level of fixed overhead costs to be incurred will be made at the start of a budget period. Fixed costs represent the expenses that do not change with the level of a company's output in the short run. Fixed costs are considered sunk costs, meaning they are already incurred and cannot be recovered, so they should not influence decisions concerning future production or pricing.

Once a budget period begins, the fixed costs are established and typically remain unchanged throughout the period. The implication is that companies plan and decide on their fixed overhead costs before production or the delivery of services starts, which is essential for formulating a budget and financial plan.