Introduction: ( By vaishali rathi)A budget is a monetary or quantitative presentation of business plans and policies to be pursued in the future period of time

Definition: according to Bartizal

”A budget is a forecast, in detail, of result of an officially recognized program operation based on the highest reasonable operating efficiency.”

On the basis of flexibility budget may be of two types Fixed Budget and flexible budget.

Fixed budget: fixed budget is also known as ‘static budget’ this budget is prepared for single level of activity and single set of business condition. it is clear that fixed budget is based on the assumption that the firm will carry out its activity only at a specific level and the target of production determine in budget will be achieved.

Definition according to ICMA London “fixed budget is a budget which is designed to remain unchanged irrespective of the level of activity actually attained”.

Flexible budget it is that budget which presents cost revenues and profits at various levels of business activities.

Definition According to ICMA London “IT may be defined as a budget which is designed to change in accordance with the level of activity attained.

Discussion:(By Vivek Garg) Fixed Budget is mainly used in the planning stage to define the broad objectives of management. Flexible budget, on the other hand is prepared for the volume of activity actually achieved, in other words the controlling stage. The reason why we had flexible budget is because for most of the time, the level of activities differ and as a result, the fixed budget differs by a lot from the actual result. Fixed budget has a limited applications as a tool for the cost control where as flexible budget has more applications as compare to fixed budget. Fixed budget is prepared for specific level of activity and flexible budget is prepare for different level of activities.

Example of static and flexible budget:

Assume that Max, Inc. created its original income production cost budget assuming
1,000 units would be produced. At the end of the month, it was determined that actual
production was only 900 units. If we compare the static budget which allows total costs
of $6,550 with the actual amounts incurred of $6,320, it appears the manager is $230
under budget, creating a favorable variance.

Conclusion: ( By shilpa thukral)For a fixed budget, the figures are for a SINGLE level of activity while a flexible budget is prepared for DIFFERENT levels of activity. The flexible budget has the advantage of assisting the manager’s deal with uncertainty by allowing them to see the expected outcomes for a range of activity. The flexible budget allows more meaningful comparison as it flex’s to the actual volume.