A manufacturing firm has certain peak seasons; namely the Christmas season, the summer season, and the last 2 weeks of February. During these periods of increased output, the firm leases additional production equipment and hires additional temporary employees. Which of the following budget techniques would best fit this firm’s needs?

Answer (A) is correct. A flexible budget is a series of several budgets prepared for various levels of sales and production. It is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results. A firm with peak seasons may prefer flexible budgeting because of its difficulties in predicting the activity level.