Fixed and flexible budgeting
In this lesson, you'll learn the difference between fixed and flexible budgeting and when to use each approach. Fixed budgets work well in stable environments where you can predict activity levels with confidence, but they quickly become outdated in volatile industries.
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In this lesson
- 0:00 Fixed vs flexible budgeting approaches
- 1:05 Understanding cost behaviour for flexible budgets
- 2:55 Worked example: building the original budget
- 5:24 Flexing the budget to different activity levels
- 7:02 Chapter summary and key takeaways
About this lesson
Flexible budgets prepare figures across multiple activity levels, giving you a more useful control tool when actual results differ from expectations. You'll discover how understanding cost behaviour is essential to building effective flexible budgets. By knowing which costs are variable, fixed, or stepped, you can quickly adjust your budget figures when activity changes. The lesson walks through a practical example showing how to flex a budget from 8,000 units to 12,000 units, demonstrating how revenue and variable costs scale with activity while fixed costs remain constant unless a step change occurs. This topic is relevant to Performance Management and Management Accounting papers, where flexible budgeting and variance analysis are core activities. Mastering this concept will help you prepare more realistic budgets and analyse performance more accurately in your exam and professional practice.
Duration: 7m
Transcript
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