What is the optimum budget that allows managers to plan revenues and expenses at different sales volumes?

The optimum budget that allows managers to plan revenues and expenses at different sales volumes is the flexible budget. This type of budget adjusts based on varying levels of activity, making it particularly effective for managing and analyzing performance in situations where sales volumes can fluctuate significantly.

Unlike fixed or static budgets, which remain constant regardless of sales volume and do not take into consideration changes in the business environment, a flexible budget provides a more realistic view of expected revenues and expenses. It enables management to prepare for various scenarios and make informed decisions based on actual performance versus budgeted figures. By adjusting to different levels of activity, a flexible budget helps identify variances that can be addressed to enhance operational efficiency and financial performance. This adaptability is crucial for businesses that experience changes in demand or economic conditions, allowing for more accurate forecasting and resource allocation.