Question

Static budgets is important for a company that:

1. does not face different possibilities of production

2. face different possibilities of production

3. achieve all stakeholders objectives

4. achieve changes in the economy

Answer 1

Answer

Static budgets is important for a company that does not face different possibilities of production.

A static budget is prepared based on the expectations of the revenues and costs of a company for the upcoming period. It is rigid and not flexible. Hence, any change in the level of production or sales does not affect the budgeted figures in a static budget. The actual results may be different with the budget which is either favourable or unfavourable. So it is appropriate for a company which does not have different possibilities of production. For such companies a static budget can be very much helpful to minimise the cost of production and thereby attaining maximum results. This is because when the production remains same, a company can find different ways to reduce the costs in the best possible manner by comparing with the previous periods.