A flexible budget prepared (before/after) the period begins allows management to make adjustments to increase profits or decrease losses.

A flexible budget prepared before the period begins allows management to make adjustments to increase profits or decrease losses. This approach provides a framework that can adapt based on the actual level of activity or production during the period. By forecasting various scenarios and adjusting for changes in sales volume and associated variable expenses, management can identify potential areas for improvement in operational performance.

When a flexible budget is utilized, it facilitates ongoing assessment and strategic decisions, enabling companies to respond dynamically to market conditions. For instance, if sales are higher than expected, the budget can adjust to reflect increased revenues, allowing managers to evaluate their cost structures and profit margins. Conversely, if sales fall short, management can analyze the flexible budget to identify opportunities for cost reductions or operational efficiencies to mitigate losses. Thus, the preparation of a flexible budget before the period begins equips management with the necessary insights to tackle financial challenges proactively.