What is a flexed budget?

What is a flexed budget?

• A. A budget that recognises cost behaviour patterns and changes as volume of activity changes.
• B. A budget that is fixed regardless of activity.
• C. A forecast for a single period only.
• D. A budget that ignores volume changes.

Answer: (A)

A flexed budget is a budget that is adjusted to reflect the actual level of activity. It starts from the original plan but recalculates costs at the actual volume, applying how costs behave as activity changes (variable costs rise with more activity, fixed costs stay the same within a relevant range, etc.). This allows a meaningful comparison with what actually happened, isolating variances that come from activity level versus efficiency or price changes. So, the correct idea is that the budget changes with volume, recognizing cost behavior patterns as activity shifts. It isn’t fixed regardless of activity, it isn’t merely a forecast for a single period, and it doesn’t ignore volume changes.

A flexed budget is a budget that is adjusted to reflect the actual level of activity. It starts from the original plan but recalculates costs at the actual volume, applying how costs behave as activity changes (variable costs rise with more activity, fixed costs stay the same within a relevant range, etc.). This allows a meaningful comparison with what actually happened, isolating variances that come from activity level versus efficiency or price changes.

So, the correct idea is that the budget changes with volume, recognizing cost behavior patterns as activity shifts. It isn’t fixed regardless of activity, it isn’t merely a forecast for a single period, and it doesn’t ignore volume changes.