What Are the Pros and Cons of a Fixed Budget?

Fixed budget (static budget) refers to the method of preparing a budget based on the normal and achievable level of a fixed business volume (such as production volume, sales volume, etc.) as the sole basis when preparing a budget. Scope of fixed budget: Enterprises with stable business operations, stable production and sales volume of products, and enterprises that can accurately predict product demand and product costs can also be used to prepare fixed cost budgets. ^[1]

Fixed budget

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Fixed budget (static budget) refers to the method of preparing a budget based on the normal and achievable level of a fixed business volume (such as production volume, sales volume, etc.) as the sole basis when preparing a budget. Scope of fixed budget: Enterprises with stable business operations, stable production and sales volume of products, and enterprises that can accurately predict product demand and product costs can also be used to prepare fixed cost budgets. ^[1]

It is the most traditional and basic budgeting method.

The advantage of the fixed budget method is its simplicity.
The disadvantages of the fixed budget method are:

(1) Too mechanically rigid. Because the business volume of budget preparation is based on a certain business volume assumed in advance, no matter what changes may occur in the business volume level during the budget period, only a certain business volume level determined in advance is used as the basis for budget preparation;
(2) Poor comparability. This is the Achilles heel of the fixed budget approach. When the actual business volume is significantly different from the estimated business volume on which the budget is based, the actual number and budget number of the relevant budget indicators will lose comparability due to different business volume bases. Therefore, the budget prepared according to the fixed budget method is not conducive to the correct control, assessment and evaluation of the implementation of the corporate budget.

In general, fixed budgets are only applicable to companies or non-profit organizations that have a relatively stable business volume.

The fixed budget method can also be called static budget, which means that the preparation of the budget "doesn't take into account" the impact of school assets, headcount, career development, and the external environment.

The flexible budget method can also be called variable budget, which refers to the method of measuring related income and expenditure according to changes in school assets, personnel, and related businesses when preparing a budget. This budgeting method reflects the influence of variable factors in real economic life and is widely used in school income and expenditure budgeting. Such as tuition fee income, taking into account the large amount of fees, and the actual number of students and the number of students will fluctuate between the years, especially in recent years, the expansion of the number of students caused by large changes, then the number of students enrolled according to the budget year plan The calculation of the number of students and the corresponding charging standards is more scientific and rational. For another example, the salary of new staff in the budget year should also be calculated according to the planned number of new staff and salary standards, and it should not be measured by the fixed budget method. The flexible budget method overcomes the shortcomings of the fixed budget method, and has the advantages of a wide budget range and strong comparability. It can make the evaluation and assessment of the implementation of the budget on a more objective and comparable basis, so that it can better exert the role of budget control. . In actual work, some income and expenditure may show a changing or step-like change trend, which can be measured by a combination of the fixed budget method and the flexible budget method.
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