A flexible budget has which of the following characteristics?

• A. It is prepared only for a single, static level of activity.
• B. It excludes variable costs from budget calculations.
• C. It adjusts budgeted costs based on actual levels of activity.
• D. It remains unchanged regardless of changes in activity levels.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a flexible budget: A flexible budget is a financial plan that adjusts based on changes in the level of activity or volume. Unlike a static budget, it is designed to reflect the actual costs incurred at different activity levels.
2. Identify the key characteristics of a flexible budget: It accounts for both fixed and variable costs, and adjusts variable costs proportionally to the actual activity levels. Fixed costs remain constant regardless of activity changes.
3. Compare the options provided in the problem: Evaluate each statement to determine which aligns with the definition and characteristics of a flexible budget.
4. Eliminate incorrect options: For example, a flexible budget is not prepared for a single, static level of activity, nor does it exclude variable costs. It also does not remain unchanged regardless of activity levels.
5. Select the correct answer: The statement 'It adjusts budgeted costs based on actual levels of activity' accurately describes the flexible budget's ability to adapt to changes in activity levels.