Page 167 - P1 Integrated Workbook STUDENT 2018

Budgeting

Fixed and flexible budgets

5.1 Fixed and flexible budgets

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.

Flexible 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.

163