Illustrate thedifference between a fixed and flexible budget, Managerial Accounting

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Difference between a fixed and flexible budget

Fixed budget

A fixed budget remains the same irrespective of changed situations.

It remains inflexible even if volume of business is changed.

A fixed budget assumes that conditions will remain constant.

In fixed budgets costs are not classified according to their nature.

If the level of activity changes then budgeted and actual results can not be compared because of change in basis.

Forecasting of accurate results is difficult.

Under changed circumstances cost cannot be ascertained.

Flexible budget

A flexible budget is recast to suit the changed circumstances. Suitable adjustments are made if the situation so demands.

This budget is changed if level of activity varies.

The costs are studied as per their nature i.e., fixed variable semi variable.

The budgets are redrafted as per the changed volume and a comparison between budgeted and actual figures will be possible.

Flexible budgets clearly show the impact of expenses on operations and it helps in making accurate forecasts.

The costs can be easily ascertained under different level of activity. This helps in fixing prices.

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