alleryStart learning →Actual costs of $130,000 exceed a static budget of $120,000. Why might that still be a positive outcome?
AFixed costs may have been reclassified
BThe budget may have been prepared late
CMore units may have been processed
DSelling prices may have been raised
Answer & Solution
Correct answer: C. More units may have been processed
1. A static budget assumes one level of activity but does not state it clearly.
2. Costs of $130,000 against a budget of $120,000 look unfavorable at first glance.
3. More units may have been processed than the budget assumed, so the extra cost bought extra output.
4. Being over budget can then be positive, because the additional production costs came from more sales orders.
5. Selling prices sit on the revenue side and would not explain a cost overrun.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.2 Static Budget_
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