Question

A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual fixed costs were lower than the expected fixed costs as per the static budget. This difference results in a(n) ________.

A) unfavorable flexible budget variance for fixed costs
B) favorable sales volume variance for fixed costs
C) favorable flexible budget variance for fixed costs
D) unfavorable sales volume variance for fixed costs

Answer 1

A favorable flexible budget variance for fixed costs occurs when actual fixed costs are lower than what was anticipated in the static budget. The correct answer is option C).

Step-by-step explanation:

When the actual fixed costs are lower than anticipated fixed costs as per the static budget, this indicates that the company has spent less than it had planned to spend on fixed expenses. Thus, there is a reduction in expenses relative to the budget.

This situation leads to a favorable flexible budget variance for fixed costs. The flexible budget is adjusted to different levels of activity and provides a better comparison for actual spending. In this case, since the actual fixed costs are lower, the company saves on expenses that were expected to be fixed.

Which can be considered positive for the business. When the actual fixed costs are lower than the expected fixed costs, it means that the company has spent less on fixed costs than anticipated, resulting in a favorable variance.