Answer (B) is correct . A flexible budget is prepared at the end of the budget period when the actual results are available. A flexible budget reflects the revenues that should have been earned and costs that should have been incurred given the achieved levels of production and sales. The difference between the flexible budget and actual figures is known as the flexible budget variance.
Answer (A) is incorrect because The production volume variance equals under- or overapplied fixed overhead.
Answer (C) is incorrect because The sales volume variance is the difference between the flexible budget amount and the static budget amount.
Answer (D) is incorrect because A standard cost variance is not necessarily based on a flexible budget.
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