Concept explainers
Distinguish between static and flexible budgets.
State the difference between the static budgets and flexible budgets.
Explanation of Solution
Flexible Budget: A flexible budget is a budget that is prepared for different levels of the output. In other words, it is a budget that adjusts according to the changes in the volume of the activity. The main purpose of preparing flexible budget is to determine the differences among standard and actual result.
Static budget: Static budget is a master budget that is prepared for only one level of sales volume. The budgeted amount of operating income and expense does not change once the static budget is developed. A static budget performance reports static budget variances.
The difference between the static budgets and flexible budgets is as follows:
A static budget is based on only one level of activity. A flexible budget allows for several different levels of activity.
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