Another name for the static budget is…
select one:
a. master budget
b. overhead budget
c. permanent budget
d. flexible budget
The correct answer and explanation is :
The correct answer is:
a. Master budget
Explanation:
A static budget, also known as a master budget, is a financial plan that remains fixed regardless of changes in business activity levels. It is prepared at the beginning of a period, usually for a fiscal year, and does not adjust even if actual sales, production, or expenses differ from the forecasted figures.
The master budget consists of several sub-budgets, such as the operating budget, financial budget, and capital expenditure budget. It provides a comprehensive financial roadmap for the organization, including expected revenues, costs, and profits. Since the static budget is created based on estimated sales and expenses, it is particularly useful for setting performance benchmarks and financial goals.
One key limitation of a static budget is that it does not account for variations in actual business conditions. If sales increase or decrease significantly, the budget figures may no longer be realistic. This is where a flexible budget (option d) differs, as it adjusts based on actual performance levels.
Other incorrect options:
- b. Overhead budget: This is a specific part of the master budget that focuses only on fixed and variable overhead costs.
- c. Permanent budget: This term is not commonly used in accounting or budgeting.
- d. Flexible budget: Unlike a static budget, a flexible budget adjusts for changes in activity levels, making it more adaptable to real-world business conditions.
In summary, the master budget is another name for a static budget because it represents a fixed financial plan that does not change based on actual performance.