Fixed Budget Vs.

Flexible Budget

Bhawya Shree
MBA- 2nd Sem
 • A budget which is designed to remain unchanged
irrespective of the volume of output or turnover attained
Definition

• It is rigid in nature
• It does not take into consideration any change in
Nature expenditure arising out of changes in the level of activity

• Useful only when the actual level of activity corresponds

to the budgeted level of activity
Usefulness
A budget which recognises the difference in behaviour b/w
fixed and variable costs (w.r.t. output, other variable factors) &
is designed to change appropriately with such fluctuations

It gives different budgeted costs for different levels of

activity

It is prepared after making classification of all

expenses between fixed, semi-variable and variable
cost
When the level of activity during the year varies
from period to period

When the business is a new one and is difficult

to foresee the demand

When the firm is suffering from shortage of factors of

production and level of activity depends upon its
availability
Provides logical comparison of actual & budgeted
output

Assist in budgetary control as it corresponds with

changes in the level of activity

Helpful in price fixation and sending quotations

Cost ascertainment at different levels of activity is

possible
 Can be
Does not
Changed based
Flexibility Change with
on Output
Output
Level Attained

Remains Static Changes with

Condition Irrespective of Change in
Condition Condition

Cost are
Cost Cost are not Classified
Classification Classified Based on
Variability
 Cost Ineffective
Great Tool for
Tool for Cost
Control Control
Cost Control

No. of One Budget at Series of Budget

a Fixed at Different
Budget Output Output

Comparison
Inaccurate Realistic
(Budgeted & Comparison Comparison for
Actual Output)