CIMA P1 Syllabus B. Budgeting - Fixed Budgets - Notes ^{1 / 7}

The master budget

prepared normally prior to the start of an accounting period is called the fixed budget

It is not changed in response to changes in activity or costs/revenues. 

It is produced for a single level of activity, i.e. based on estimated production.

Comparison of a fixed budget with the actual results for a different level of activity is of little use for budgetary control purposes. 

This is because we will not really be comparing like with like.

The purpose of a fixed budget

lies  in its use at the planning stage.

• It is useful for controlling any fixed cost, and particularly non-production fixed costs 

  such as advertising, because such costs should be unaffected by changes in activity level.