Which statement best describes a flexible budget versus the master budget?

Which statement best describes a flexible budget versus the master budget?

• A. It Is Identical To The Master Budget
• B. It Is A Static Plan At One Level Of Activity
• C. It Ignores Actual Activity
• D. It Is Prepared At Several Levels Of Activity

Answer: (D)

A flexible budget shows costs and revenues at different activity levels so it can be compared to actual results, even when actual output differs from the plan. It is prepared for several levels of activity, allowing the budget to be adjusted to what actually happened. The master budget, by contrast, is a static plan for a single expected level of activity. Therefore, the statement that best describes a flexible budget is that it is prepared at several levels of activity. The other choices describe the master budget or misunderstand its nature: a single, unchanging plan, or ignoring actual activity, which do not apply to a flexible budget.

A flexible budget shows costs and revenues at different activity levels so it can be compared to actual results, even when actual output differs from the plan. It is prepared for several levels of activity, allowing the budget to be adjusted to what actually happened. The master budget, by contrast, is a static plan for a single expected level of activity. Therefore, the statement that best describes a flexible budget is that it is prepared at several levels of activity. The other choices describe the master budget or misunderstand its nature: a single, unchanging plan, or ignoring actual activity, which do not apply to a flexible budget.