Question

A difference between the static budget and the flexible budget is called the ________.

1) total variance
2) volume variance
3) flexible budget variance
4) None of the answers is correct

Answer 1

The difference between the static budget and the flexible budget is referred to as the flexible budget variance, which accounts for changes based on actual levels of activity. Hence, the correct answer is option (3).

Step-by-step explanation:

A difference between the static budget and the flexible budget is called the flexible budget variance. This is because a static budget is created with the assumption of a fixed level of activity or volume, and it does not change with the actual level of activity.

On the other hand, a flexible budget adjusts for different levels of activity and can provide a more accurate comparison by showing what the budget should have been for the actual level of activity experienced. Therefore, the flexible budget variance helps management understand how well the company performed compared to what would have been expected at the actual level of activity.