Answer (D) is correct . A flexible budget is actually a series of budgets prepared for various levels of activity. A flexible budget adjusts the master budget for changes in activity so that actual results can be compared with meaningful budget amounts.
Answer (A) is incorrect because Flexible budgets address external factors only to the extent that activity is affected.
Answer (B) is incorrect because A flexible budget essentially restates variable costs for different activity levels within the relevant range. Hence, a flexible budget variance does not address capacity use. An output level (production volume) variance is a fixed cost variance.
Answer (C) is incorrect because By definition, flexible budgets address differences in activity levels only within the relevant range.
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