Difference between fixed budget and flexible budget

Fixed budget is the budget that does not take into account any circumstance resulting in the actual level of activity achieved beibg different from those on which the original budget was based.

flexible budget on the other hand is the budget that adjust to activity or volume levels of the entity.flexible budget continously flexes with activity change.

the following are difference between fixed budget and flexible budget

  • fixed budget does not change with the volume of the activity while flexible budget can be recast on the basis of volume of cost
  • in fixed budget all costs are related to one level of activity only while in flexible budget costs are analysed by behaviour and variable costs are allowed as per activity attained
  • fixed budget is the rigid budget and is drawn on the assumption that conditions will remain constant meanwhile flexible budget is designed to change according to changed conditions
  • in fixed budget if budget and actual activity levels vary, cost ascertainment does not provide a correct picture while in flexible budgeting selling price and costs can be fixated at different levels of activity
  • in fixed budget the ascertainment of costs is not possible in fixed costs while in flexible budget costs can be easily ascertained at different levels of activity
  • fixed budget have limited application for cost control while flexibel budget has more application and can be used as a tool for effective cost control
  • in fixed budget comparison of actual and budgeted performance can not be done correctly because the volume of prodcution differs while in flexible budget comparison are realistic according to the change in the level of activity
  • in fixed budget costs are not classified according to their variability that is fixed, variable and semi-variable while in flexible budget costs are classified according to the nature of their variability

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