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A budget is a quantitative statement prepared for a future period to express the plans, objectives and expected activities of an organisation in financial or non-financial terms. In management accounting, budgeting is an important technique for planning, coordination, cost control and performance evaluation. It helps management estimate revenues, costs, production, sales, cash requirements and profits in advance. Among the different types of budgets, fixed and flexible budgets are particularly important because they help management control operations under different conditions of activity. A fixed budget, also known as a static budget, is a budget prepared for a single level of activity and is not changed when the actual level of activity differs from the budgeted level. It is normally prepared at the beginning of a budget period on the assumption that a particular volume of production or sales will be achieved. The estimated revenues and expenses are calculated according to that predetermined level of activity. Once prepared, the fixed budget remains unchanged throughout the period, irrespective of changes in actual output or sales. For example, suppose a manufacturing business prepares a budget for producing 10,000 units. It estimates material cost of ₹5,00,000, labour cost of ₹2,00,000 and factory overheads of ₹1,50,000. If actual production is 8,000 or 12,000 units, the original budget remains based on 10,000 units. Therefore, a fixed budget does not adjust its cost estimates according to the actual volume of activity. A fixed budget is useful when the level of activity can be estimated with reasonable accuracy and when business conditions are relatively stable. It provides a clear target for managers and helps in planning the overall operations of an organisation. It can also be useful for establishing long-term objectives, allocating resources and communicating management expectations to different departments. The main features of a fixed budget are that it is prepared for one specific level of activity, remains unchanged during the budget period, is relatively simple to prepare and is based on predetermined assumptions. It is generally suitable for organisations where production and sales levels are stable and predictable. It can also be used for controlling fixed expenses __________ ________ __________ ______ _________ ________ _________ _________ _______ _____.
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