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What is a fixed budget?

Harold Averkamp, CPA, MBA

Definition of Fixed Budget

A fixed budget is a budget that does not change or flex for increases or decreases in volume. (“Volume” could be sales, units produced, or some other activity.) A fixed budget is also known as a static budget.

Example of Fixed Budget

To illustrate a fixed budget, let’s assume that a company pays a 5% sales commission on all of its sales. If the company prepares a fixed budget and it is projecting sales of $1 million, the budget for sales commissions will be fixed at $50,000. If the actual sales end up being only $900,000 the budget for sales commissions will remain unchanged at the fixed amount of $50,000. If the actual sales are $1,100,000 the budget for sales commissions will also be $50,000.

Had the company prepared a flexible budget, the budget for sales commissions would be expressed as 5% of sales. This means that the budget for sales commissions will be $50,000 only when sales are $1 million. If the company has actual sales of $900,000, the budget for sales commissions will flex and will be $45,000 (5% of $900,000). If the actual sales are $1,100,000 the budget for sales commissions will be $55,000.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

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