Flexible budget is a budget that changes with the changed production/sales volume or other significant variable. Budgeted sales/revenues and variable costs are therefore flexed with the actual activity level, but fixed costs usually remain unchanged. Flexible budget shows how the financial plan/target would look like if actual (not planned) sales/production volume were used. The variances between budget and actual are therefore usually much lower than with fixed budgets. The condition of using this approach is splitting of all costs into variable and fixed components.
Therefore, flexible budgets are a kind of sensitivity analysis.
The opposite term to flexible budget is fixed (or static) budget. (25)