What is the difference between a static and a flexible budget? Which one is most often used in variance analysis and why?
A static budget is prepared at the beginning of the period. Budgeted revenues and costs are based on what production and sales are expected to be, for the upcoming period.
A flexible budget is prepared at the end of the period. Budgeted revenues and costs are based on the actual number of units produced and sold. A flexible budget is used in variance analysis because it compares budgeted revenues and costs with actual revenues and costs at the actual level of output.
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