Which statement describes a flexible budget?

Which statement describes a flexible budget?

• A. Remains fixed regardless of activity.
• B. Is prepared only after actual results.
• C. Adjusts budgeted costs for different activity levels.
• D. Ignores variance analysis.

Answer: (C)

Flexible budgeting adjusts budgeted costs for different activity levels. It provides estimates at various levels of output, recognizing that variable costs rise or fall with activity while fixed costs stay the same at a given activity level. This setup lets you compare actual results to the budget that matches the actual level of activity, making variance analysis meaningful. A budget that remains fixed regardless of activity is a static budget, not flexible; a budget prepared only after results isn’t how a flexible budget is used; and a budget that ignores variance analysis misses a key purpose of flexible budgeting.

Flexible budgeting adjusts budgeted costs for different activity levels. It provides estimates at various levels of output, recognizing that variable costs rise or fall with activity while fixed costs stay the same at a given activity level. This setup lets you compare actual results to the budget that matches the actual level of activity, making variance analysis meaningful. A budget that remains fixed regardless of activity is a static budget, not flexible; a budget prepared only after results isn’t how a flexible budget is used; and a budget that ignores variance analysis misses a key purpose of flexible budgeting.