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What is the difference between Fixed Budget and Flexible Budget?


Budgets are prepared to forecast future course of action. Company uses different budgets to forecast the future activity and with the help of it company plans its action. Budgets are used to compare the forecasted action with actual action to identify the accuracy in performance of activity. Company classified its budget into two parts according to its flexibility that is fixed budget and flexible budget. The fixed budget does not consider any change in forecasted data and actual data. The assumption of fixed budget is that there is no change in any level of activity or in other words there is no change in sales and output level. All the cost is same in fixed budget whether it is fixed cost or variable cost. The other budget which is just opposite of fixed budget is flexible budget. Flexible budget considers changes in level of activity in future. It classifies the cost in three parts that is fixed cost, variable cost and semi-variable cost. The flexible budget is prepared for various levels of activity and it also helpful for budgetary control.

There are some differences between fixed budget and flexible budget:
Point of differences
Fixed Budget
Flexible Budget
What is fixed budget and flexible budget?
The budget which does not change with change in volume of output is known as fixed budget.
The budget which can change with change in volume of output is known as fixed budget.
What is the other name of fixed budget and flexible budget?
Fixed budget is also known as static budget.
Flexible budget is also known as variable budget.
Classification of cost in fixed budget and flexible budget
In fixed budget the cost is not classified like in flexible budget.
In flexible budget the cost is classified in three parts that is fixed cost, variable cost and semi-variable cost.
What is the benefit of using fixed budget and flexible budget?
The fixed budget is beneficial for those organisations which do not change with internal or external factors.
The flexible budget is useful to show changes of result with change in internal or external factors.
Rigid and Flexible nature
The fixed budget is rigid in nature.
The flexible budget is flexible in nature it can change with change in factors.
Which budget is helpful for comparison?
The fixed budget is not good for comparison because the business the forecasted value does not change if the output is different.
The flexible budget is good for comparison because it is helpful to show the change which affects the organisation performances.
Forecasted the cost accurately
The fixed budget is not able to forecast accurately because some factors are not remain same.
The fixed budget is able to forecast accurately because the budget adapt the changes frequently.
Which budget is act as a tool for cost control?
The fixed budget is not use as a cost control tool because it does not classify the cost in different parts like fixed cost and variable cost.
The flexible budget is use as a cost control tool because it classify the cost in different parts like fixed cost and variable cost etc.



Comments

  1. MS SilvaApril 05, 2019 8:12 pm

    Hi, Nice post. Have you another site about FD Blog (Financial). I need to talk with a FD. If have plz share. Thanks

    ReplyDelete
    Replies
    1. Jyoti YadavApril 05, 2019 10:44 pm

      Hi, MS Silva thanks for your comment but I don't have another site related to finance. But I can try to suggest some site where you can clear your doubts. So, tell me what's your question related to FD.

      Delete
  2. UnknownApril 08, 2021 8:14 am

    Hi
    The content is easy and very useful
    Thank you 😊

    ReplyDelete
  3. Raunak KushwahaAugust 25, 2021 5:55 pm

    Thank you for sharing this blog, actually, I really need this information for my preparation. From this blog, I learn about budget. It is also important topic for current affairs section. I really appreciate you.
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    ReplyDelete
    Replies
    1. Jyoti YadavAugust 27, 2021 12:35 pm

      Thank you so much for appreciating my work.

      Delete
  4. SycoNovember 18, 2021 8:54 pm

    Positive site, where did u come up with the information on this posting?I have read a few of the articles on your website now, and I really like your style. Thanks a million and please keep up the effective work. Tax preparation ohio

    ReplyDelete
  5. SycoFebruary 01, 2022 6:34 pm

    Positive site, where did u come up with the information on this posting?I have read a few of the articles on your website now, and I really like your style. Thanks a million and please keep up the effective work. Merchant Referral Program

    ReplyDelete
  6. MoolamoreJune 24, 2024 9:54 am

    while both Fixed and Flexible Budgets serve important purposes in financial planning and control, the choice between them depends on the organization's need for flexibility in responding to changes in business conditions and the desire for accuracy in evaluating financial performance. Flexible budgets are generally preferred in dynamic environments where activity levels vary, providing managers with more meaningful insights into financial performance. Best Cash Flow Forecasting Software | Financial Forecasting Strategy

    ReplyDelete

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