What is a Static Budget?

A static budget is characterized by its fixed nature, meaning that it remains unchanged regardless of the actual level of sales or production that occurs. This type of budget is typically developed for a specific period and outlines expected income and expenses based on predetermined assumptions. As such, a static budget does not reflect the fluctuations in business activity and is particularly useful for planning and controlling activities when managing set costs, such as operational expenses that are unlikely to vary significantly over time.

In contrast, a budget that allows for changes based on performance would be considered a flexible budget, which can adjust to different levels of activity. A budget solely for marketing expenses would not encompass the broader financial planning that a static budget represents. Furthermore, a flexible budget that adapts to market conditions showcases an entirely different approach than a static budget, emphasizing the dynamic nature of budgeting in response to changing operational environments.