What type of budget would a company use to adjust based on actual sales performance?

A flexible budget is designed to adapt to changes in actual sales performance, allowing the company to adjust its budgeted revenues and expenses according to varying levels of activity. This type of budget is particularly useful for businesses that experience fluctuations in sales volume.

By creating a flexible budget, a company can analyze how costs behave at different levels of sales, providing valuable insights for management. For instance, if sales exceed expectations, the flexible budget can accommodate higher revenue predictions and associated variable costs, enabling better decision-making regarding resource allocation, staffing, and inventory management.

In contrast, a static budget remains fixed regardless of actual sales levels, providing a less accurate reflection of financial performance when actual sales deviate from projections. Zero-based budgeting requires justification for all expenses and starts from a "zero" base, making it less suitable for adjusting based on performance. Incremental budgeting, on the other hand, modifies existing budgets based on previous periods' figures, typically not responding dynamically to changes in sales performance. Thus, the flexible budget is the optimal choice for management's needs in adjusting to actual sales operations.