The correct answer is: A. A static budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.
A static budget is a financial plan that is prepared for a specific level of production or activity. It is based on the assumption that certain factors, such as sales volume, costs, and prices, will remain constant throughout the budget period. However, in reality, these factors often change, which can make a static budget inaccurate.
A flexible budget is a financial plan that is prepared for a range of production or activity levels. It takes into account the fact that costs and revenues will vary depending on the level of production or activity. This makes a flexible budget more accurate than a static budget.
Option B is incorrect because a static budget can be prepared for an entire production or for a single department.
Option C is incorrect because a flexible budget does not allow management latitude in meeting goals. It is simply a more accurate way of planning for different levels of production or activity.
Option D is incorrect because a flexible budget considers both variable and fixed costs. A static budget, on the other hand, only considers fixed costs.