FLEXIBLE BUDGET

A flexible budget considers the range of possible activity within a firm. Behaviourial costs such as fixed, variable and overhead are adjusted accordingly.

A flexible budget requires a unit of measure, such as machine hours or units of output. In addition, the cost accountant considers spending variances such as variable overhead spending variances.

Contrary to this type of budget, a static budget is used when costs or spending is fixed with a ceiling. A static budget is inflexible and not suitable in a manufacturing environment.