A flexible budget has which of the following characteristics?

• A. Useful For Evaluating Past Performance
• B. Useful To Compare What-If Scenarios
• C. Always Based On One Level Of Activity
• D. Often Based On Several Levels Of Activity

Answer: (C)

A flexible budget is designed to reflect how costs change as activity varies. Instead of sticking to a single activity level, it provides budgeted costs for multiple possible levels within the relevant range. This lets you compare actual results to what would be expected at the actual level of activity, making variance analysis more meaningful. Variable costs rise or fall with activity, while fixed costs stay relatively steady within the range, so having budgets for several activity levels captures the real behavior of costs.

That broader, activity-sensitive approach is why a characteristic like being based on several levels of activity is central. The other statements aren’t defining features of a flexible budget: it isn’t primarily about evaluating past performance or performing just one set of “what-if” scenarios, and it isn’t tied to one fixed activity level.