The primary difference between a static budget and a flexible budget is that a static budget
A) contains only fixed costs, while the flexible budget contains only variable costs.
B) is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
C) the flexible budget is prepared for a single level of activity, while a static budget is adjusted for different activity levels.
D) the static budget is constructed using input from only upper-level management, while a flexible budget obtains input from all levels of management.
E) the flexible budget is constructed using input from only upper-level management, while a static budget obtains input from all levels of management.
Static Budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.Static budgets reflect anticipated inputs and outputs calculated before the period in question begins. Static budgets do not change regardless of increases or decreases in sales or production volumes, but are forecasts of revenue and expenses over a specific period. However, the actual results after the fact can differ quite a bit from the numbers that are derived from static budgets. Accounting, finance professionals, and management teams use static budgets to gauge the financial performance of a company over time.Static Budgets allow the company to plan output and input. The budget, in turn, assists the company in managing cash flow, income, and expenses. It allows the company to monitor both the departments’ day-to-day work and their long-term planning. Most stakeholders can use this budget to ensure monetary control. Spending should be matched with revenues, so that overspending can be prevented.
Flexible budget refers to a budget that varies based on the activity or volume of a company. As opposed to a static budget, which does not change from its amounts when it is first created, a flexible budget constantly “flexes” to accommodate any variations in a business’s costs over time. Using this type of budgeting, a company can plan for increase or decreases in monetary requirements by using variable rates per unit as opposed to a fixed amount. A percentage of revenue rather than static figures is usually used for this type of budget since it is based on changes in revenue rather than static numbers. A flexible budget may, for example, allocate 25% of a company’s revenue to salaries rather than $100,000 in a given year. It takes into account any changes in the company’s revenue and staff that may occur throughout the year.
|Static Budget does not changes with actual volume of output.||Flexible Budget does not changes with actual volume of output.|
|Static Budget cannot ascertain costs in case of change in circumstances.||Flexible Budget can ascertain costs in different levels of activities.|
|Static budget is prepared without classifying the costs according to their variable nature.||Flexible budget is prepared by classifying the costs according to their variable nature.|
|In case of Static Budget , it is difficult to forecast accurately the results in it.||In case of Flexible Budget , the impact of various expenses on the operational aspect of the business can be clearly shown.|
|Static budget has a limited application and is ineffective as a tool for cost control.||Flexible budget has a wide application as an effective tool for cost control.|