Question

The flexible budget contains:

A) Static budget amounts for planned output
B) Actual costs for actual output
C) Actual costs for planned output
D) Budgeted amounts for actual output

Answer 1

A flexible budget contains budgeted amounts that adjust to the actual output, rather than static amounts for planned output or the actual costs incurred.

Step-by-step explanation:

The correct answer to the student's question about what a flexible budget contains is: D) Budgeted amounts for actual output.

Flexible budgets are designed to provide a more useful tool for comparing actual costs to budgeted costs because they adjust to reflect the actual level of output. Unlike a static budget, which outlines expected revenues and expenses at one level of production, flexible budgets adjust the budgeted amounts for the actual output produced.

They take into account the relationship between fixed and variable costs to operations. Fixed costs, such as the rent on a factory or retail space, do not change with production levels, while variable costs change directly with the production volume.

Therefore, a flexible budget will change its budgeted expenses to match the variable cost levels associated with the actual production volume.

It is important for entities, including all levels of government—federal, state, and local—to plan their finances, but these budgets can shift due to policy decisions or unexpected events.