A flexible budget is defined as a projection of budget data from various levels of activity. The budget recognizes the difference in cost behavior namely fixed and variable costs in relations to fluctuations in output or turnover. This budget is designed to change appropriately with such fluctuation. The steps to develop a flexible budget, management should first identify the activity index and the relevant range of activity. Secondly, they should identify the variable costs and determine the budgeted variable cost per unit of activity for each cost. Third, they should identify the fixed costs and determine the budgeted amount for each cost. Last management should prepare the budget for the selected increments of activity within the relevant range. The flexible budget report consists of two sections. The first section is for the production data for a selected activity such as direct labor hours and the second section is the cost data for variable and fixed costs. The report provides a basis for evaluating a manager’s performance in two areas. Those two areas are cost control and production control. The flexible budget can be used to evaluate the internal performance of employees by comparing the salary payments outlined in the budget to the amount of sales at any given time to determine whether more or fewer sales employees are effective. The flexible budget report will also reveal where the company is spending most of their money. It is outlined under flexible and fixed expenses. The budget will also outline which products are bestsellers as well as ones that are not selling at all. Lastly, the flexible budget spending can be compared to the overall sales performance of the month to see how their marketing campaigns are going. These numbers will let the company know if their marketing is