FLEXIBILITY

Fixed & Flexible

Fixed Budget
 Remain unchanged irrespective of all the level
of activity
 Single level of activity,
 Not adjusted when the production level are

changes,
 Rarely used,
 Not used for cost control (actual 20000 units

& budgeted 18000 units)

 Units are overlooked.
Can employ

 Budgeted output is close enough to actual,

 Likely to happen rather what has happened,
 Rule of Thumb i.e “Last year’s figure+20%” is

not beneficial
 What needs to be done & how to be done?
Flexible Budget
 Variable/Dynamic/Expenses Control/Sliding
Scale/Expenses Formula,
 Difference between fixed, semi-fixed &

variable costs,
 Designed to change in relation to the level of

activity,
 Prepare for more than one level of activity,
 Set of alternatives,
Underlying principle
 Every business is dynamic
 Ever changing
 Never static
 So, flexible budget would apply to a “relevant

range” of production (eg. 8000 to

10000units)
 Automatically geared to change in the

production activity,
 Provide info. For multi level of activity,
Uses
 Accurate budgeting
 Accurate performance measurement &

evaluation,
 Coordination
 Control tool