Question

Which of the following is true of static budgets?

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

Answer 1

Static budgets are created based on a single level of activity and do not adjust to changes in activity levels. They include fixed costs like rent which remains constant regardless of production levels, making static budgets rigid and less useful in varying conditions.

Step-by-step explanation:

Which of the following is true of static budgets? The correct answer is: a. They are developed around a single level of activity.

Static budgets are financial plans that are based on a predetermined level of activity. They do not change or adjust once they are set, even if the actual level of activity changes. These are in contrast to flexible budgets, which adjust costs based on different levels of activity. For example, the fixed costs such as the rent on a factory or a retail space would be the same in the static budget regardless of the production levels. While static budgets can be useful for planning purposes, their rigidity makes them less useful when it comes to performance reporting in dynamic and variable environments.