A flexible budget is necessary to control direct materials and direct labor as well as variable selling and administrative expenses if the actual activity level differs from the static budget activity level. To control fixed costs, the use of static budget is appropriate, not necessarily the use of flexible budget.
Fixed costs are the same for any level of activity within the relevant range. Thus, a flexible budget is not necessary to control fixed factory overhead. In fact, total fixed costs are the same in a flexible budget as they are in the static budget. However, a flexible budget is necessary to control direct materials and direct labor if the actual activity level differs from the static budget activity level.
While a flexible budget can be prepared for any level of activity, this is not the best answer to the question among the answer choices given.
Fixed costs are the same for any level of activity within the relevant range. Thus, a flexible budget is not necessary to control fixed factory overhead. A flexible budget is necessary to control direct materials and direct labor if the actual activity level differs from static budget activity level.
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