What is Fixed and Flexible Budget?
A flexible budget is a budget which is designed to change in accordance with the LEVEL OF ACTIVITY attained. It is also known as Variable budget as the budget recognizes the difference in cost behavior namely fixed and variable costs in relations to fluctuations in output or turnover. The budget is designed to change appropriately with such fluctuation. For a fixed budget, the budget remains unchanged irrespective of the level of activity actually attained. The fixed budget is prepared based only on one level of output. Therefore, if the level of output actually achieved differs considerably from that budgeted, large variances will arise.
