Question

What is the primary difference between a static budget and a flexible budget?
a. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.
b. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.
c. The static budget contains only fixed costs, while the flexible budget contains only variable costs.
d. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

Answer 1

Answer: Option (D)

Explanation:

Static budget is referred to as the budget under which measure and quantity  will not alter even with the compelling changes in the volume.

Whereas on the other hand, flexible budget is referred to as the budget that tends to further adjusts i.e. bends with the alteration in the volume or the activity. Flexible budget is known to be more convoluted and sophisticated than the static budget.

Answer 2

Answer:

The correct answer is letter "D": The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

Explanation:

The budget variance can be calculated using either a static budget or a flexible budget. All measures have to be conducted at the end of the accounting period. The static budget is projected at the end of the year and represents changes in the costs -raw materials- business operations over the year. These are only designed for one level of production volume and do not adjust after they have been created.

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.