What is a flexible budget or variable budget?

Flexible budget or variable budget is the budget which by recognizing the difference in behavior between fixed and variable cost in the relation to fluctuations in output, turnover or other variable factors such as the number of employees, is designed to change appropriately with such fluctuations.

A flexible budget is not as rigid as in the case of a fixed budget. Instead, it adapts itself to any level of activity. The flexible budget varies according to a change in a level of output. Hence, it is also known as variable budget. It serves as a useful tool for controlling costs.

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