Which type of budget is used to evaluate a company's performance by comparing actual results to budgeted results?

The flexible budget is an essential tool for evaluating a company’s performance as it allows for adjustments based on actual levels of activity. Unlike a static budget, which remains unchanged regardless of the actual activity level, the flexible budget is adjusted to reflect the actual output or sales. This means that it provides a more accurate comparison of actual results to what the company had planned, by allowing for variations in sales volume or production levels.

By using a flexible budget, management can assess how well the company is managing its costs and resources relative to its changing operations. It helps identify variances, allowing managers to analyze areas of overperformance or underperformance, and take corrective actions as necessary. This adaptability makes the flexible budget highly effective for performance evaluation, particularly for businesses that experience fluctuating activity levels.

In contrast, the static budget is set at the beginning of a period and does not change, making it less effective for performance evaluation in dynamic environments. The operating budget focuses on day-to-day activities and is more about planning than evaluating performance against actual outcomes, while the capital budget is concerned with long-term investments and capital expenditures rather than operational performance.