Final answer:
A static budget is fixed and does not change with activity levels, while a flexible budget adjusts for changes in activity levels. A static budget is used when activity levels are constant, while a flexible budget is used when activity levels vary.
Step-by-step explanation:
A static budget is a budget based on fixed costs and volume levels that does not change regardless of actual activity levels. It is usually created at the beginning of the budgeting period and remains unchanged throughout that period. A flexible budget, on the other hand, is a budget that adjusts for changes in activity levels. It is created using different amounts for fixed costs and variable costs based on the actual activity levels achieved. Each type of budget is used in different situations. A static budget is typically used when the activity levels are expected to remain constant and there is a high degree of certainty in the budgeted amounts. It is useful for planning and control purposes. A flexible budget, on the other hand, is used when the activity levels are expected to vary or when there is uncertainty in the budgeted amounts. It allows for more accurate performance evaluation by comparing the actual results achieved with the budgeted amounts that would have been achieved at the same activity levels.