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Budgeting

Fixed and flexible budgets

8.1 Fixed budget

This contains information on costs and revenues for one level of
activity.

Where the actual level of activity is different to that expected,
comparisons of actual results against a fixed budget can give
misleading results.

8.2 Flexed budget

This shows the same information, but for a number of different levels of
activity.

This type of budget provides two key benefits:

 managers are better prepared for a range of scenarios

 variances can be based on the most suitable budget.

In budgetary control systems managers should always compare
performance against a flexed budget.

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