A flexible budget prepared before the period begins allows management to make adjustments to increase profits or decrease losses.

• A. Before
• B. After
• C. During
• D. None

Answer: (A)

A flexible budget adjusts for different activity levels, showing how revenue and costs would behave as volume changes. Because it’s prepared before the period, it provides a planning baseline you can use to set targets and identify where to adjust spending or resources to protect or improve profitability. With actual activity known, the flexible budget lets you compare results at the actual level of activity, spot favorable or unfavorable variances, and take timely actions—such as scaling variable costs, reassigning resources, or moderating discretionary spending—to increase profits or reduce losses.