A flexible budget seeks to overcome the problem of differing levels of activity between budget and actual output volumes. A new flexed budget is prepared at the actual output level to be used for variance analysis purposes. A simple example could be the budget given to you to grade test papers of 30 minutes per paper for 10 students = 300 minutes. If only 8 students sit the test your budget will be flexed to 240 minutes (8 x 30).)

Required:

In your own words, explain the meaning of flexing the budget and why it is necessary.