Budget Classification According to Flexibility

Budget Classification According to Flexibility

(1)  Fixed Budget: This is budget in which targets are rigidly fixed. Such budgets are usually prepared from one to three months in advance of the fiscal year to which they are applicable. Thus, twelve months or more may elapse before figures forecast for the December budget Are used to measure actual performance. Many things may happen during this intervening period and they mayh make the figures go widely out of the line with the actual figures. Thought it is true that a fixed, or static budget as it is sometimes called, can be revised whenever the necessity arises, it smacks of rigidity and artificially so far as control over costs and expenses are concerned. Such budgets are preferred only where sales can be forecast with the greatest of accuracy which means, in turn, that the cost and expenses in relation to sales can be quite accurately ascertained.

(2)  Flexible Budget