ECONOMICS

Detailed explanation-1: -Static vs Flexible Budgets Static Budget-the budget is prepared for only one level of production volume. Also called a Master budget. Flexible Budget-a summarized budget that can easily be computed for several different production volume levels. Separates variable costs from fixed costs.

Detailed explanation-2: -To calculate a flexible budget, first multiply the variable cost by the actual units produced. For example, if you produced 100 units at a unit cost of $5, the budget might be $5, 000. A flexible budget accounts for a larger number of units produced, so you might expect to sell up to 150 units.

Detailed explanation-3: -A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume variance.

Detailed explanation-4: -Fixed costs will be the same in the static/planning budget and the flexible budget because fixed costs are unaffected in total by changes in the activity level. Therefore activity variances for fixed costs are always zero.