Fixed Budgeting

The master budget discussed before is a fixed budget.

A fixed budget is defined via as:

1. Just one level of activity

2. Not adjusted to reflect real activity level when change happens

A fixed budget has the given limitations as:

1. It gives little assistance at the planning stage. It does not provide implication of different alternative strategies that management may wish to consider.

2. It fails to give relevant and reliable base against that to measure real performance where real activity differs from the budget.

3. Little motivation to management to employ the budgeting control system like a control aid.