In: Accounting
can we start on explaining the difference between static budgeting and flexible budgeting. Include in your discussion the impact of controllability on the use of either in evaluating employee performance.
A static budget is a budget which does not changes as the volume changes and as the name suggest it remains static irrespective of the volume.it is also called fixed budget because it remains same.
A flexible budget is a budget is a budget which changes as the volume changes and as the name suggest it remains flexible as per the volume.it is called flexible budget because it adjust according to the volume.
A budget is used as an important tool to evaluate the performance of the employees and as an effective measure of controll because it compares the budgeted performance with the actual result and helps in throwing light on the reasons of deviations whereas a static budget if compared with the actual result may vary significantly and will not show a true picture on the performance of the employees because it remains fixed irrespective of the volume and there could very much be a possibility that the volume has changed and we will not be able to analyse the results properly wheras in flexible budget if compared with actual results will show the true performance of the company because it will adjust itself according to the actual volume and accordingly, we will be able to analyse properly therefore it is better to use flexible budget instead of static budget (which should be used only in those company's where volume is expected to remain same and can be estimated with some degree of accuration).so as to control and analyse the performance its always suggested to use flexible budget.