If the actual level of activity is 4 more than planned then

If the actual level of activity is 4% more than planned, then the costs in the static budget should be increased by 4% before comparing them to actual costs. True or False?

Solution

True.

A flexible budget would be drawn up for the actual level of activity, with the variable costs in the static budget increased by 4%. But fixed costs would remain unchanged. The actual values would then be compared to the valuesas per the flexible budget.