Week 4 Discussion: Flexible and Static Budgets

Static budgets and flexible budgets are budgeting methods utilized by managements for

coordinating, planning and managing business operations. The preparation of static budgets is

done in advance and cannot be changed throughout the budgeting period regardless of the level

of activity. In contrast, a flexible budget is one the changes based on the adjustments in business

activity levels. It is worth acknowledging that this type of budgeting is often useful for firms thar

that experience constant fluctuations in business activities, such as seasonal businesses and those

that experience changes in demand because of the current economic conditions. A perfect

example of a business with the potential of benefiting from a flexible budget is a ski resort. In

this respect, the level of business transactions in this resort primarily depends on weather

conditions, which in most instances cannot be predicted. A flexible budget can help such a firm

adequately adjust its costs and revenues in line with the actual level of business activity like the

number of snowboarders and skiers available and the quantity of snowfall. By being the most

appropriate business selection in this case, flexible budget is advantageous because it issues a

highly accurate framework of a business, paving way for a more accurate cost analysis and

revenue forecasting.