Question

2) Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily ________.

A) increase the planned variable overhead budgets
B) add value for the customer using the products or services
C) increase the linearity between total costs and volume of production
D) identify the product advertising requirements

Answer 1

Effective planning of variable overhead costs aims to perform activities that add value for the customer, align costs with production levels, and manage diminishing marginal returns.

Step-by-step explanation:

In the context of managing a company's overhead costs, effective planning of variable overhead costs means ensuring these costs only arise from activities that add value for the customer who uses the products or services. Unlike fixed costs, variable costs such as labor and raw materials change with the level of output. These costs should be managed in a way that aligns closely with variations in production volume while also adding value to the end consumer.

Considering variable costs show diminishing marginal returns and the marginal cost of producing higher levels of output rises, it is crucial to plan for these costs judiciously to ensure efficient production without unnecessary expense.