Static and Flexible Budgets and Explain Their Difference

Explain the relationship between fixed and variable costs used in a flexible budget The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. Thus in a flexible budget the percentage remains the same while the values change to reflect changes in output.

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A static budget once formulated cannot be changed irrespective of changes occurring in its assumed activity before the fixed period is over.

. All revenue and expense calculations are based on that one level of sales volume. You are in a job interview and your possible employer asks you to describe the differences between the flexible and the static budget and to explain which you would recommend for a small business and why. Many organizations opt to use both since static budgets are good for some things and flexible budgets are good for others.

They both play a part in good business accounting and are often used in personal finance too. A static budget can also be an effect-budgeting method when paired alongside other budgeting methods. The difference between the actual results and the static budget 2.

For example suppose Company A follows a static budget and it has a sales commission budget of 50000. A flexible budget however is free to be adapted according to changes at any point of the set period. Fixed budgets are rigid.

View the full answer. Difference between static and flexible budgets. The budget does not change even if the activity levels change more than expectations either way.

Companies create a static budget at the beginning of an accounting period outlining how much they predict theyll spend and receive. Flexible budget changes as per the fluctuations of business. 100 1 rating Difference between Static and Flexible Budgets.

The key difference between master budget and flexible budget is that master budget is a financial forecast that contains all budgeted revenues and costs for the upcoming accounting year whereas flexible budget is a budget that is adjusted by incorporating the changes in the number of units produced. Budget is a comprehensive financial plan of allocation of financial resources. Explain the difference between strategic and operational budgets.

It is quite tough to prepare a flexible budget since one needs to prepare for all situations. Hello The fixed budget is related to your fixed revenues and exepenses like mortgage electricity car payement expenses and your employers pay revenues. Criteria Static Budget Flexible Budget NATURE It does not change with the actual volume of the output achieved.

A static budget is one based on the level of output planned at the start of the budget period. The main difference between Static and Flexible budgets lies in its nature of adaptability. Compares actual results with budget data at the activity level used in.

Flexible Budget Vs Static Budget. Static budget or fixed budget is a type of budget where the value does not change despite changes in the sales volume. A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during managements planning process.

Fixed budget is very simple and works on assumptions while the flexible budget is complex and works on real data. Ignores data for different levels of activity. Fixed Budget is based on the assumption whereas Flexible Budget is realistic.

This question hasnt been solved yet. Fixed budgets are operational at single activity level whereas flexible budgets can be operated at multiple levels. The difference between the.

Static Budget Variance. A static budget on the other hand remains. The company creates the flexible budget after the.

Fixed Budget operates in only one activity level but Flexible Budget can be operated on multiple levels of output. It is designed to change appropriately with the level of activity attained. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period.

Answer 1 of 2. Explain what is meant by a static budget variance and a flexible budget variance. The third section will explain how flexible budgets can assist with cost-volume-profit CVP analysis.

The static budget provides a realistic goal for the accounting period. Static budgets are a good way to keep production costs on track and encourage the staff in charge of purchasing to make the greatest possible effort to obtain the required goods at the lowest possible price. It is easy to prepare a fixed budget.

A flexible budget is a budget prepared for various levels of sales volume. Key Difference Master Budget vs Flexible Budget. A static budget is a budget prepared for only one level of sales volume.

A static budget on the other hand remains. Explain the difference between static and flexible budgets. The static budget variance.

Fixed Budget is static in nature while Flexible Budget is dynamic. A flexible budget is very dynamic. Static and flexible budgets are two separate yet interconnected parts of a solid business accounting regimen.

A flexible budget isnt better than a static budget -- they simply serve different purposes. The flexible budget is related to your flexible expenses like groceries clothing activities restaurants and your. The fundamental differences between static and flexible budgets are that a static budget does not change as volume changes whereas a flexible budget changes line values to reflect the level of activity.

The second section will discuss the differences between static and flexible budgets. How would you respond to this potential employer. Static Budget vs Flexible Budget.

The key difference of the static budget is that it remains fixed throughout changes in cash flow expenses and other financial aspects of a companys budget. A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during managements planning process. A projection of budget data at one level of activity.

Businesses can use flexible budgets or static budgets. When used in budgetary control each budget included in the Master Budget is considered to be static. Fixed Budget is inelastic as it cannot be re-casted as per the actual output.

The only difference between the static budget and the flexible budget is that the static. A fixed budget is always static.

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