Question

An understanding of cost behavior is useful to managers for: A. Absorption costing B. Flexible budgeting C. External reporting D. Inventory costing and income determination

Answer 1

The correct answer is letter "B": Flexible budgeting.

Step-by-step explanation:

Cost behavior helps managers to implement different budgeting strategies to maximize revenues. During the operations of a company, costs may vary. However, a company must drive all its efforts to keep its initial strategic plan unchanged keeping its profits goals.

For such a purpose, top executives must know how to handle flexible budgets to shorten certain operations or increase productivity in front of raising costs scenarios or managing a level of surplus (if the costs drop) that does not affect the entity but could offset future shortages.