4. What are the differences between fixed (static) and flexible budgets?

Expert Solution

Fixed Budget is a type of budget which does not change with the change in activity level of the organisation. It remains constant at all levels of activity. Whereas ,Flexible Budget is a type of budget which keeps on changing with the change in level of activity.

There is only single level of activity in Fixed budget,whereas level of activities are multiple in case of flexible budget.

Hence,the nature of Fixed budget is static ,whereas Flexible budget is of Dynamic nature.

Because of single level of activity in case of fixed budget the comparison between the actual and budgeted levels cannot be done accurately.Whereas,Flexible Budget provides accurate comparisons of actual and budgeted levels of activity.

Fixed Budget cannot be modified in accordance with the actual production.Whereas, Flexible Budget can easily be modified in accordance to the level of activity i.e. actual production.

Fixed Budget is merely based on assumptions whereas, Flexible Budget is accurate practicle as well as realistic.

ekkarill92 answered 1 year ago

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