A flexible budget differs from a static budget in that a flexible budget:
- Adjusts budgeted revenues and costs to reflect the actual level of activity achieved during the period (correct answer)
- Uses actual costs rather than standard costs as the basis for the budget figures
- Excludes fixed costs in order to focus exclusively on variable cost performance
- Is prepared on a monthly cycle rather than annually to capture seasonal fluctuations
Explanation: A flexible budget recalculates expected revenues and costs at the actual level of activity achieved, enabling a fair comparison between what costs should have been at actual volume and what they actually were. This separates volume-driven differences from price and efficiency differences. Option B describes using actual costs, which would eliminate any variance to analyze. Option C is incorrect; flexible budgets include both variable and fixed costs. Option D describes a rolling budget, not a flexible budget.