Fixed Budget does not change with actual volume of activity achieved, however, Flexible Budget can be re-casted on the basis of activity level to be…

Difference between Fixed and Flexible Budgets: Sl. No. Fixed Budget Flexible Budget 1. It operates on one level of activity and under one set of conditions. It assumes that there will be no change in the prevailing conditions, which is unrealistic. It consists of various budgets for different levels of activity. 2. Here as all costs like - fixed, variable and semi-variable are related to only one level of activity so variance analysis does not give useful information. Here analysis of variance provides useful information as each cost is analysed according to its behaviour. 3. If the budgeted and actual activity levels differ significantly, then the aspects like cost ascertainment and price fixation do not give a correct picture. Flexible budgeting at different levels of activity facilitates the ascertainment of cost, fixation of selling price and tendering of quotations. 4. Comparison of actual performance with budgeted targets will be meaningless specially when there is a difference between the two activity levels. It provides a meaningful basis of comparison of the actual performance with the budgeted targets.