Q4RQ - Horngren'S Financial And Managerial Accounting

Question

Question: How do flexible budgets differ from static budgets?

Step-by-Step Solution

Answer

Answer

The primary difference between a flexible and static budget is that a flexible budget will change as per the activity level, but a static budget will remain the same.

Step 1: Definition of Performance Report

The report used to reflect the achievement of the business entity is known as a performance report. It compares the actual results of the business activities against the budget prepared by the business entity. 

Step 2: Difference between flexible budget and static budget

Flexible budget	Static budget
This budget changes with the change in the level of output.	This budget remains the same and does not change with the change in the level of activity.
Under this budget, the business entity can determine the cost for a different activity level.	Under this budget, the cost cannot be determined if there is variation in activity level.
Under this budget, the cost is classified based on its variable cost.	Under this budget, the cost is not classified.