A flexible budget is useful to compare what-if scenarios.

A flexible budget is useful to compare what-if scenarios.

• A. True
• B. False
• C. Not Applicable
• D. Not Used

Answer: (A)

Flexible budgeting enables what-if analysis by adjusting the budget to different activity levels. It separates costs by behavior—variable costs move with activity while fixed costs stay constant within a relevant range—so you can project how results would look at varying volumes or capacities. This makes it possible to compare actual performance to what would have been expected at the actual level of activity and to explore alternative scenarios, such as higher or lower sales or changes in efficiency, without committing to a single, static plan. That adaptability is why it is the best approach for evaluating what-if scenarios.

Flexible budgeting enables what-if analysis by adjusting the budget to different activity levels. It separates costs by behavior—variable costs move with activity while fixed costs stay constant within a relevant range—so you can project how results would look at varying volumes or capacities. This makes it possible to compare actual performance to what would have been expected at the actual level of activity and to explore alternative scenarios, such as higher or lower sales or changes in efficiency, without committing to a single, static plan. That adaptability is why it is the best approach for evaluating what-if scenarios.