Question

Unfavorable activity variances may not indicate bad performance because Blank______.

Multiple choice question.

costs should not change as activity changes


increased activity should result in higher fixed costs


increased activity should result in higher variable costs

Answer 1

Unfavorable activity variances may not indicate bad performance because **increased activity should result in higher variable costs**.

This is because variable costs change with the level of activity, so even if costs are higher due to increased activity, it may not necessarily reflect poor performance but rather the normal functioning of the business under increased production or service levels.