What does the comparison between the fixed budget and the flexed budget illustrate?

What does the comparison between the fixed budget and the flexed budget illustrate?

• A. Flexed budget adjusts for actual activity; fixed budget remains constant.
• B. Flexed budget is actual cost; fixed budget is estimate.
• C. Flexed budget is always higher than fixed.
• D. There is no difference.

Answer: (A)

Flexed budgets illustrate how costs respond to actual activity levels. A fixed budget is set for a planned level of activity and stays constant even if actual activity differs. A flexed budget, however, is adjusted to reflect the actual level of activity, using the same per-unit cost rates as the original plan. This alignment makes it possible to compare what costs would have been at the actual activity with actual costs, isolating the impact of changing activity from other variances. For example, if you planned 1,000 units but produced 1,200, the fixed budget remains at the 1,000-unit level, while the flexed budget expands to 1,200 units. The difference between actual costs and the flexed budget highlights efficiency or price variances at the actual activity level, rather than the effect of producing more units. That’s why choosing the option that says the flexed budget adjusts for actual activity while the fixed budget remains constant best captures what the comparison shows.

Flexed budgets illustrate how costs respond to actual activity levels. A fixed budget is set for a planned level of activity and stays constant even if actual activity differs. A flexed budget, however, is adjusted to reflect the actual level of activity, using the same per-unit cost rates as the original plan. This alignment makes it possible to compare what costs would have been at the actual activity with actual costs, isolating the impact of changing activity from other variances. For example, if you planned 1,000 units but produced 1,200, the fixed budget remains at the 1,000-unit level, while the flexed budget expands to 1,200 units. The difference between actual costs and the flexed budget highlights efficiency or price variances at the actual activity level, rather than the effect of producing more units. That’s why choosing the option that says the flexed budget adjusts for actual activity while the fixed budget remains constant best captures what the comparison shows.