Challenge Your Exam Readiness With Our Free CMA Part 1 Practice Questions

A flexible budget is designed to adjust based on changes in activity levels, making it a critical tool for performance evaluation in dynamic business environments. Unlike a static budget (A), which is prepared for a single level of activity and does not change regardless of actual output, a flexible budget recalculates expected revenues and expenses at varying levels of production or sales. This adaptability allows management to compare actual results against more realistic standards, thereby identifying variances caused by efficiency or inefficiency rather than changes in volume. Zero-based budgets (C) require justification of all expenses from scratch but do not inherently adjust with activity levels. A master budget (D) is a comprehensive set of budgets covering all operations, typically static in nature. CMA Part 1 emphasizes flexible budgeting as a vital planning and control mechanism, particularly for variance analysis and managerial decision-making.