The purpose of a flexible budget is to:

A: reduce the total time in preparing the annual budget.

B: compare actual and budgeted results at virtually any level of production.

C: eliminate cyclical fluctuations in production reports by ignoring variable costs.

D: allow management some latitude in meeting goals.

Answer: The correct answer is B: This is the definition of a flexible budget. Compared to a static budget, which shows only one level of production, the flexible budget shows budgeted costs and revenues for any level of production. As levels of production change, the costs and revenues will change as well. The flexible budget provides that information. Variance analysis is made more meaningful with flexible budgets.