Answer- Meaning:-
A flexible budget is a budget prepared for various level of activities, revenues and expenses. Static budget is prepared at the beginning of the year and not changed until make a new one at the start of the next year.
Advantages:-
1-Adapt to changes:-
A flexible budget is allowed to adjust based on a change in the assumptions during management's planning process.
A static budget remains same even if there are significant changes in the assumptions during management's planning process.
2-Adjust for changing cost and profit margins:-
In static budget cost of operations and product profit margin are set at the start of the year. But Flexible Budget handle these changes.
3-Better Cost Control:-
Flexible budgets react more quickly to adverse conditions.
A static budget would not adjust to the decline in revenues and expenses.
Disadvantages:-
As complex or as simple as management needs:-
For a small, simple business a static budget may be appropriate.
However, for larger and more complex businesses the use of a flexible budget is essential.
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