When using a flexible budget, a decrease in activity within the relevant range:

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Consider the concept of a flexible budget, which adjusts costs to the actual level of activity within the relevant range.
Option 1: 'decreases variable cost per unit.' In a flexible budget, the variable cost per unit typically remains constant per unit; it does not automatically decrease just because total activity decreases. So this statement is inaccurate.
Option 2: 'increases variable cost per unit.' This would imply costs per unit go up as activity declines, which contradicts the idea of a stable variable cost per unit in a flexible budget. Therefore this is false.
Option 3: 'decreases total costs.' As activity falls, the total cost in a flexible budget generally falls as well, since there are fewer units produced or sold and the variable portion of costs shrinks accordingly, while fixed costs stay within the relevant range. This aligns with how flexible budgeting behaves.
Option 4: 'increases total costs.' This would occur only if fixed costs rise or variable costs per unit rise with lower activity, which is not characteristic of a standard flexible budget within the relevant range. Hence this is incorrect.
In summary, the correct implication of a decrease in activity within the relevant range is a reduction in total costs, due to fewer units and the associated variable costs.

ACTG-2300-4 Chapter 9 PreClass Work

When using a flexible budget, a decrease in activity within the relevant range:

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