Question

Flexible budgets vs static budgets

What is the difference between an flexible budget and a static budget? What is a flexible budget? (6 senteces or more)

Answer 1

Ans:-

Difference between a flexible budget and a static budget are:

Basis	Flexible bugdet	Static budget
1. Nature	A flexible budget is designed to change appropriately with the level of activity attained.	A static budget does not change with the actual volume of the output achieved.
2. Scope	Flexible bugdet can easily ascertain costs in different levels of activities.	A static budget cannot ascertain costs correctly in case of any change in circumstances.
3. Determination of cost	Flexible bugdet is prepared at different levels of activities considering the possible changes in the operational aspects of a business.	SaticS budget is prepared under the assumption that all conditions will remain unaltered.
4. Assumptions	Flexible bugdet has a wide application as an effective tool for cost control.	Static budget has a limited application and is ineffective as a tool for cost control.
5.Pre-requisites	Flexible budget is prepared by classifying the costs according to their variable nature.	Static budget is prepared without classifying the costs according to their variable nature.

Flexible budget : Flexible means easily adjustable, and Bugdet refers to an anticipated plan made for the financial activities of the entity.

Therefore, the flexible budget is a financial plan created for different activity levels. It can be freely adjusted or re-casted on the basis of output produced. It is logical and practical because the cost can be easily determined at various activity levels.

Flexible budget, it is more practicable.