Question

What is the primary difference between a static budget and a flexible budget?

Answer 1

The fundamental differences between static and flexible budgets are that a static budget does not change as volume changes whereas a flexible budget changes line values to reflect the level of activity. In a flexible budget the percentage remains the same while the values change to reflect changes in output.

Answer 2

Answer and explanation:

The static budget is projected at the end of the year and represents changes in the costs (mainly raw materials) of business operations over the year. These are only designed for one level of production volume and do not adjust after they have been produced.

Flexible budgets are calculated by the beginning of the year and can vary based on the level of production during the year. These are calculated for various volume rates and separate fixed and variable costs.