Fixed and Flexible Budget Differences

There are two kinds of budgets in cost accountingCost AccountingCost accounting is a defined stream of managerial accounting used for ascertaining the overall cost of production. It measures, records and analyzes both fixed and variable costs for this purpose.read more that differ in scope, nature, and usefulness. We call these fixed budgets and flexible budgets.

  • A fixed budget is a kind of budget where the income and the expenditure are Pre-determined. Irrespective of any fluctuation or change, this budget is static. Companies that are static and execute the same transactions can significantly benefit from a fixed budget. But wherever there are fluctuations, a fixed budget doesn’t turn out to be the most suited one.On the other hand, a flexible budget is a budget that is flexible as per the needs of the hour. For example, if the company sees that it can sell off more of its products by expending more on advertising costs, a flexible budget would help execute that. That’s why a flexible budget is very effectiveA Flexible Budget Is Very EffectiveA flexible budget refers to an estimate which varies with the change in production activity or volume. Such a budget is more realistic and flares the managerial efficiency and effectiveness as it sets a benchmark for the actual corporate performance.read more for companies who go through many changes during a particular period. It is much more complicated than the fixed budget too.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Difference Between Fixed and Flexible Budget (wallstreetmojo.com)

Fixed vs Flexible Budget Infographics

Key Differences Between Fixed and Flexible Budget

  • A fixed budget is a budget that doesn’t change due to any change in activity level or output level. A flexible budget is a budget that changes as per the activity level or production of units.The fixed budget is static and doesn’t change at all. On the other hand, a flexible budget is adjustable as per the necessity of the business.A fixed budget is always fixed. That means it is the same for any activity level. A flexible budget, on the other hand, is semi-variable. One part of it is fixed, and another changed as per the activity level.The fixed budget is very simplistic. A flexible budget is pretty complicated.The fixed budget takes comparatively little time to prepare. On the other hand, a flexible budget takes a lot more time.A fixed budget is estimated on the past data and management’s anticipation regarding future events. On the other hand, a flexible budget is estimated based on realistic situations.A fixed budget isn’t advantageous to medium and large enterprises but only suitable for micro-organizations. A flexible budget is suitable for all kinds of organizations – from micro to large.

Comparative Table

Conclusions

On the other hand, flexible budgeting is very much adjustable to business situations. As a result, the business doesn’t need to incur losses. That’s it’s prudence to use flexible budgeting no matter what scale of business you’re in.

This has been a guide to the Fixed vs. Flexible Budget. Here we discuss the top differences between Fixed and Flexible Budgets and infographics and a comparative table. You may also have a look at the following articles for gaining further knowledge in Corporate Finance –

  • Personal Monthly Budget TemplateFlexible BudgetTraditional vs Zero Based BudgetingBudgeting vs ForecastingRolling Budget