In cost behavior within a flexible budget, which statement is most accurate?

• A. Both Fixed And Variable Costs Vary With Activity
• B. Variable Costs Remain Constant And Fixed Costs Vary With Activity
• C. Variable Costs Change With Activity And Fixed Costs Remain Constant
• D. Both Fixed And Variable Costs Remain Constant

Answer: (C)

In cost behavior within a flexible budget, it's important to separate costs by how they respond to changes in activity. Variable costs change in direct proportion to activity: as production or sales rise, total variable costs rise; as activity falls, they fall. Fixed costs, on the other hand, stay constant within the relevant range of activity in the budgeting period. So the most accurate statement is that variable costs change with activity while fixed costs remain constant. For example, increasing units produced raises materials and direct labor costs, while things like rent or depreciation don’t change in the short term. The other descriptions mix up this behavior—fixed costs don’t vary with activity in the short term, and variable costs aren’t constant as activity changes, and it’s not true that both stay constant.