Question

When performance evaluation is based on a static budget, there is little incentive to drive sales and production above anticipated levels because increases in volume tend to produce more costs and unfavorable variances.

A) It results in increased profits
B) It leads to more favorable variances
C) It can result in more costs and unfavorable variances
D) It encourages cost-effective operations

Answer 1

When performance evaluation is based on a static budget, it can result in more costs and unfavorable variances.

Step-by-step explanation:

When performance evaluation is based on a static budget, there is little incentive to drive sales and production above anticipated levels because increases in volume tend to produce more costs and unfavorable variances. Therefore, the answer to this question is C) It can result in more costs and unfavorable variances.