Answer :
When all the items in a budget are adjusted in proportion to a change in activity then it is assumed that all the costs will change in proportion to the change in activity. However, this assumption holds good only if all the cost are strictly variable.
It is unlikely that all costs will be variable so this assumption is questionable. Some costs may be fixed or mixed.
Cost behavior is a trademark of how a cost will exchange in overall while there is an exchange in some activity. In price accounting and managerial accounting, three styles of value conduct are normally discussed: Variable costs. the whole quantity of a variable fee will increase in percentage to the growth in an activity.
For instance, if the use of a production line is drawing close its maximum capacity, the relevant cost conduct would be to assume a big price growth (to pay for an equipment enlargement) if the incremental demand stage increases with the aid of a small additional amount.
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