Cost and Management Accounting

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Difference between Fixed and Flexible Budgets

Basis of DifferencesFixed/Static BudgetFlexible Budget
1. Level of activityIt is based on only one level of budget activity.It is based on different levels of budget activity.
2. FlexibilityIt is fixed and does not change with the actual volume of output achieved.It is flexible and changes with the actual volume of output achieved.
3. NatureIt is based on unrealistic assumptions.It is based on realistic assumptions.
4. ConditionIt assumes that the working conditions always remain fixed.It assumes that the working conditions change according to their variability.
5. Cost classificationThere is no provision of cost classification.There is provision of cost classification i.e. variable, fixed and semi-variable.
6. Cost controlIt has limited application and is ineffective as a tool for cost control.It has more applications and can be used as a tool for effective cost control.

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