The static budget is an example of a:

• A. Fixed
• B. Flexible
• C. Rolling
• D. Incremental

Answer: (A)

A static budget is a plan fixed for a specific level of activity and it doesn’t change when actual output or sales differ. It lays out expected revenues and expenses for that one activity level, so the comparison of actual results to the plan can reveal variances, even if volume wasn’t the same as planned. This is different from a flexible budget, which adjusts the budgeted numbers to match whatever actual activity occurred, giving a more meaningful apples-to-apples comparison. Rolling budgets are continuously updated to extend the planning horizon, and incremental budgets build on the prior period with small changes. Because the plan remains unchanged regardless of activity, the static budget is described as fixed.