What is the main purpose of a flexible budget?
Correct answer: B. To adjust budgeted costs for the actual activity level
- A. To replace the firm's annual financial statements
- B. To adjust budgeted costs for the actual activity level
- C. To estimate only the required cash balance
- D. To record transactions after they occur
Explanation
A flexible budget changes expected revenues and costs according to the actual level of activity. This makes it more useful for evaluating performance than a fixed budget when output differs from the original plan.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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