Definition of Static Budget
A static budget is a budget in which the amounts will not change even with significant changes in volume.
In contrast to a static budget, a company’s sales department might have a flexible budget. In the flexible budget, the sales commissions expense budget would be stated as a percentage of sales.
Example of a Static Budget
Assume that a company’s annual budget is a static budget. In this static budget is a line “sales commissions expense budget $200,000.” This means that the budget for sales commissions expense will be $200,000 whether the actual sales for the year are $2 million, $4 million or $8 million.
[In contrast, a flexible budget for sales commissions expense might be expressed as 5% of sales. This means that the budget for sales commissions expense will flex with sales volume. When sales are actually $2 million, the flexible budget for sales commissions will be $100,000. When sales are actually $4 million, the flexible budget for sales commissions will be $200,000. When sales are actually $8 million, the flexible budget for sales commissions will be $400,000.]
