Based on level of activity or capacity utilization, there is a type of budget which is prepared keeping in mind one level of output. It is a budget which is designed to remain unchanged irrespective of the level of activity attained. Identify it among the following:

Based on level of activity or capacity utilization, budgets are classified as follows: Fixed Budgets – is prepared keeping in mind one level of output. It is a budget which is designed to remain unchanged irrespective of the level of activity attained. If actual output differs from the budgeted level of output, variances arise. Flexible Budgets – It is designed to change in relation to the level of activity attained. Flexible budgets are prepared in those companies where it is extremely difficult to forecast output and sales with accuracy.