When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.

When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.

• A. Per Unit; In Total
• B. In Total; Per Unit
• C. Per Unit; Per Unit
• D. In Total; In Total

Answer: (A)

In a flexible budget, you separate variable costs and fixed costs by how they behave with activity. Variable costs change in direct proportion to the number of units produced or sold, so you express them as a cost per unit. This lets you compute the total variable cost at any activity level by multiplying the per-unit cost by the actual units. Fixed costs, however, do not change with activity within the relevant range, so they’re shown as a constant total amount. Then total budgeted cost at any level is (variable cost per unit × units) plus fixed costs in total. For example, if variable cost per unit is $5 and you plan for 8,000 units, variable costs are $40,000; fixed costs might be $20,000, for a total of $60,000. If activity rises to 10,000 units, variable costs become $50,000 while fixed costs stay at $20,000, giving a total of $70,000. This demonstrates why variable costs are expressed per unit and fixed costs in total.

In a flexible budget, you separate variable costs and fixed costs by how they behave with activity. Variable costs change in direct proportion to the number of units produced or sold, so you express them as a cost per unit. This lets you compute the total variable cost at any activity level by multiplying the per-unit cost by the actual units. Fixed costs, however, do not change with activity within the relevant range, so they’re shown as a constant total amount.

Then total budgeted cost at any level is (variable cost per unit × units) plus fixed costs in total. For example, if variable cost per unit is $5 and you plan for 8,000 units, variable costs are $40,000; fixed costs might be $20,000, for a total of $60,000. If activity rises to 10,000 units, variable costs become $50,000 while fixed costs stay at $20,000, giving a total of $70,000. This demonstrates why variable costs are expressed per unit and fixed costs in total.