What does the term "flexible budget" refer to?

The term "flexible budget" specifically refers to a budget that adjusts based on changes in volume or activity levels. This type of budget is particularly useful for organizations because it allows them to account for varying degrees of business activity rather than sticking with fixed estimates that may not reflect actual performance.

A flexible budget is typically prepared by taking a predetermined baseline budget and modifying it according to actual activity levels, such as sales or production output. This adaptability enables managers to better analyze variances and manage costs effectively by providing more accurate comparisons between budgeted and actual figures, helping them make informed decisions.

In contrast, the other choices refer to concepts that do not capture the essence of a flexible budget. Some remain constant regardless of activity levels or are developed for specific projects or one-time periods, which would not allow for adjustments based on operational changes.