Answer (D) is correct . A flexible budget is actually a series of several budgets prepared for many levels of operating activity. A flexible budget is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results. This flexibility is important if costs vary with the activity level. Thus, a flexible budget is particularly appropriate for control of direct labor and direct materials (both variable costs), but is not necessary for control of fixed factory overhead. By definition, overhead costs do not change as activity levels change.
Answer (A) is incorrect because A flexible budget is not necessary for control of costs that will be the same at all levels of activity.
Answer (B) is incorrect because Flexible budgets are useful for controlling variable costs, including variable selling and administrative costs.
Answer (C) is incorrect because A flexible budget is prepared for a specific range of activity levels.
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