The primary difference between a static budget and a flexible budget is that:

The primary difference between a static budget and a flexible budget is that:

a. the static budget contains only fixed costs, while the flexible budget contains only variable costs.

b. the static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

c. the flexible budget is prepared for a single level of activity, while a static budget is adjusted for different activity levels.

d. the static budget is constructed using input from only upper-level management, while a flexible budget obtains input from all levels of management.

e. the flexible budget is constructed using input from only upper-level management, while a static budget obtains input from all levels of management.

Answer: b. the static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

A static budget also referred to as a fixed or master budget is a budget prepared at one particular level of activity or output. It is frequently expressed as a percentage and therefore does not change according to the result of operations performed during the period. On the other hand, flexible budget is a budget that is prepared in such a way that it changes or is variable depending on the actual level of activity that has been achieved. It is aimed at showing the budgeted sums for activity at various levels, which makes it easier to compare the variance between the budgeted and the actual at different levels of production or sales. The feature of flexible budget helps to meet the variable nature of costs and revenues thus making the flexible budget to be more real and suitable.