Fixed Budget: A fixed budget is designed to remain unchanged irrespective of the level of activity. This budget is prepared on the basis of a standard or fixed level of activity. This budget becomes an unrealistic yardstick in case the level of activity actually attained does not conform to the one assumed for budgeting purposes. Due to the limitations of fixed budgeting, firms whose sales and production cannot be accurately estimated have given up the practice of fixed budgeting.

Flexible Budget: A budget that is designed to change in accordance with the level of activity attained is called a flexible budget. This budget is prepared after considering the fixed and variable elements of cost and the changes that may be expected for each item at various levels of operations. Flexible is desirable in the following cases:

• Sales are unpredictable, e.g., luxury or semi-luxury products.
• The venture is new & it is difficult to foresee the demand, e.g., fashion products.
• Where the business is subject to the vagaries of nature, such as soft drinks.
• Government interference, e.g., cigarettes, liquor, etc.

Utility of Computers

• Computers facilitate the Budget preparation work, which is otherwise a lengthy clumsy and cumbersome exercise.
• Since budget represents an estimate of future costs and revenues. Correct and accurate estimations can be made with the help of computers.
• Accuracy in various Budget Calculation exercise can be achieved with the help of computers.
• Time saving fast speed working, flexible budget preparing and Budgetary Control exercise can be implemented with the help of latest software package in computers.
• Control Ratios may be computed accurately with the help of computers.