Certification in Supplier Diversity Practice Exam

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What does a flexible budget provide?

A fixed amount for all circumstances
Alternative budget estimates for changing conditions
A guideline for emergency expenditures
An estimate only for fixed costs

The correct answer is: Alternative budget estimates for changing conditions

A flexible budget is designed to adapt to varying levels of activity within an organization. It provides alternative budget estimates for changing conditions, making it particularly useful for organizations whose revenues and expenses fluctuate based on their operational volume or external factors. By adjusting budget figures according to different levels of activity, a flexible budget helps management assess performance more accurately and make informed decisions about resource allocation and operational adjustments. For example, if a company experiences a surge in sales, a flexible budget allows it to see how costs might increase in response, enabling more effective financial planning and control. This adaptability distinguishes flexible budgets from fixed budgets, which do not change with the level of activity and can provide misleading performance evaluations if circumstances change.