Final answer:
The statement is true; a flexible budget is an essential tool for management to adjust revenues and control costs based on actual levels of activity, offering a more accurate and adaptable financial planning approach compared to a static budget.
Step-by-step explanation:
The statement that a flexible budget helps determine management's ability to increase revenues and control costs when there are significant differences between actual and static budgeted levels of activities is true. Flexible budgets are designed to adjust and reflect the actual level of output, revenue, or other activity metrics instead of remaining static. Such budgets provide a more accurate representation of costs and revenues at different levels of operation and allow management to make more informed decisions regarding cost controls and revenue strategies.
Unlike a static budget, which does not change after the planning period, a flexible budget adapts to changes in business activity levels. For instance, during economic downturns, a flexible budget might show lower expected revenues and allow for certain cost reductions that are not possible under a static budget. Conversely, in times of exceptional business performance leading to higher activities than anticipated, the flexible budget would adjust for the increased costs associated with higher output.