Fixed budget

Last updated: 20.03.2016

Fixed budget is a budget that is not flexed with the changed production/sales volume or other significant variable.  The variances between budget and actual are therefore usually great. But in practice, fixed budgets are used more widely than flexible budgets.

 

Fixed budget is useful mainly when:

  • the budget serves as a target
  • there are not substantial changes in production/sales volume over time
  • costs are largely fixed (which is nowadays often the case)

 

Fixed budgets are not very appropriate for evaluating the performance of responsibility centers.

 

The opposite term to fixed budget is flexible budget.



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