Final answer:
A Flexible budget is the one that adjusts to activity changes, providing an accurate comparison for performance evaluation by reflecting actual operating conditions. The correct option is C.
Step-by-step explanation:
The budgeting approach that responds to changes in activity and provides a better tool for performance evaluation is C) Flexible budget.
A flexible budget adjusts to changes in the volume of activity, allowing managers to compare actual costs for a given level of output to what the costs should have been for that level of output, which enhances performance evaluation.
Unlike a fixed or static budget, which remains unchanged regardless of activity levels, flexible budgets provide a more accurate basis for comparing actual performance against budgeted amounts because they reflect the company's actual operating environment.