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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

A budget that is prepared for one level of activity only and is not adjusted when actual output differs from the planned output is called a:

The budget is a fixed budget. It is prepared for one predetermined level of activity and is not revised when actual output differs. This makes comparison with actual results less meaningful when volumes change, unlike a flexible budget, which is adjusted to the actual activity level.

  1. AFlexible budget
  2. BFixed budgetCorrect
  3. CZero-base budget
  4. DRolling budget

Explanation

A fixed budget is drawn up for a single, predetermined activity level and stays unchanged even if actual volume differs. A flexible budget, by contrast, is recast for the actual level of activity. Zero-base and rolling budgets deal with justification of items and periodic updating, not with the fixed activity level.

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