Question

Earl prepared a flexible budget for one of Bubba's profit centers. Which of the following items would Earl not expect to vary with the level of activity?

A. Revenue.
B. Fixed manufacturing overhead.
C. Direct materials cost.
D. Variable manufacturing overhead.

Answer 1

Earl would not expect Fixed manufacturing overhead to vary with the level of activity. Fixed costs, such as manufacturing overhead, do not change regardless of the level of production. Revenue, direct materials cost, and variable manufacturing overhead would all vary with the level of activity.

Step-by-step explanation:

Earl would not expect Fixed manufacturing overhead to vary with the level of activity.

Fixed costs, such as manufacturing overhead, do not change regardless of the level of production. These costs are incurred even when there is no production. Examples of fixed manufacturing overhead include rent for the factory or retail space, salaries for management, and insurance. These costs stay the same whether the profit center produces a high volume of goods or a low volume.

On the other hand, revenue, direct materials cost, and variable manufacturing overhead would all vary with the level of activity. Revenue increases or decreases based on the quantity of goods sold. Direct materials cost increases as more materials are used in production. Variable manufacturing overhead, such as electricity or direct labor, also increases or decreases with the level of production.