what is flexible budget

A flexible budget is a budget that adjusts to changes in the level of activity or output. It can be adjusted depending upon revenue and cost changes throughout the fiscal year, accounting for actual revenues or other activity measures. This type of budget allows for greater adaptability in planning and control, as it can accommodate changes in business conditions and performance. Unlike a static budget, which remains unchanged regardless of actual revenue levels, a flexible budget is more responsive to the business environment and can provide more relevant variances for control purposes. The steps needed to construct a flexible budget include identifying fixed costs, determining the extent to which variable costs change with activity measures, and entering actual activity measures into the model to update the variable costs. Overall, a flexible budget offers businesses the ability to be nimbler and more adaptable in their financial planning, especially in the face of changing economic conditions or unforeseen events.