# What is the difference between the static budget and flexible budget?

The key difference between the static budget and the flexible budget is the volume or sales units used in the projections. The static budget uses the original volume forecasted, while the flexible budget is updated for the actual volume. For example, if during May Year 1, the company budgeted 10,000 units, but actually sold 12,000 units, then the static budget would use 10,000 units and the flexible budget would use 12,000 units.

Why is removing volume from the budget vs actual analysis beneficial?

The main benefit of using actual volume in the flexible budget is that it removes the impact of volume when comparing the flexible budget to the actual results (in a budget vs actual analysis). For example, if the static budget had \$1,000 of revenue and the actual revenue for the period was \$1,500, then you might initially say that actual revenue was higher due to higher volumes.

However, if you updated the flexible budget for actual volumes and forecasted revenue was \$1,250, then when compared to actual revenue of \$1,500, volume is no longer an explanation for the variance. Instead, you will have to analyze the sales mix, pricing, etc.

What types of accounts are impacted when converting from a static to flexible budget?

Only accounts that are impacted by volume would be changed when converting the static budget to a flexible budget. This would basically just be revenue and variable cost accounts, which ultimately impact gross profit or contribution margin. Fixed costs will remain unchanged between the static and flexible budget.

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