Distinction between fixed budget and flexible budget

Distinction between fixed budget and flexible budget Fixed budget Flexible budge

fixed budget does not change with the volume of activity 1. It can be recast on the basis of volume of cost.

2. All costs are related to one level of activity only. 2. Costs are analysed by behaviour and variable costs are allowed as per activity attained.

3. If budget and actual activity levels vary, cost ascertainment does not provide a correct picture. 3. Flexible budgeting helps in fixation of selling price at different levels of activity.

4. Ascertainment of costs is not possible in fixed cost. 4. Costs can be easily ascertained at different levels of activity.

5. It has a limited application for cost control. 5. It has more application and can be used as a tool for effective cost control.

6. It is rigid budget and drawn on the assumption that conditions would remain constant. 6. It is designed to change according to changed conditions.

7. Comparison of actual and budgeted performance cannot be done correctly because the volume of production differs. 7. Comparisons are realistic according to the change in the level of activity. 8.

Costs are not classified according to their variability, i.e., fixed, variable and semi-variable. 8. Costs are classified according to the nature of their variability.

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