The Company has experienced a pattern of business whereby revenue for its third and fourth fiscal quarters reflects an increase over first- and second-quarter revenue. The Company attributes this increase to clients increased spending at the end of their calendar year budgetary periods and the culmination of its annual sales plan. Since the Companys costs do not increase proportionately with the third- and fourth-quarters increase in revenue, the higher revenue in these quarters results in greater profit margins and income. Fourth-quarter profitability is traditionally affected by significant new hirings, training, and education expenditures for the succeeding year.

a) Why dont the companys costs increase proportionately as the revenues increase in the third and fourth quarters?

b)What type of budgeting seems appropriate for the Computer Associates situation?

My response for a) is:

As the cost behavior is primarily fixed, the costs do not increase proportionately with the revenues increase in the third and fourth quarter.

My response for b) is:

Static budgeting seems to be most appropriate for Computer Associates. In flexible budgeting the costs respond proportionately with changes in the activity level but in static budget it do not.

I am being told I am missing information, please help