What is the Difference Between Master Budget and Flexible Budget?
🆚 Go to Comparative Table 🆚The main difference between a master budget and a flexible budget lies in their planning and adaptability to changes in the activity level. Here are the key differences:
- Master Budget:
- It is a financial forecast that contains all budgeted revenues and costs for a specific period.
- It is prepared for a single level of activity or production.
- It is a static budget, meaning it does not change based on actual activity levels.
- The purpose of the master budget is to consolidate many sub-budgets into a single one and provide a comprehensive view of the organization's financial plan.
- Flexible Budget:
- It is a revised master budget based on the actual activity level achieved for a specific period.
- It can be prepared for multiple activity levels, separating fixed and variable costs.
- It adjusts the budget based on actual sales volume or production output, allowing for better comparisons with the actual results.
- The purpose of the flexible budget is to allow better comparisons with the actual results by incorporating changes in the activity level.
In summary, a master budget is a static financial forecast prepared for a single level of activity, while a flexible budget is a revised master budget that adjusts based on actual activity levels. Both budgets serve important roles in the budgetary control process, helping organizations with cost control and performance measurement.
Comparative Table: Master Budget vs Flexible Budget
The main difference between a master budget and a flexible budget lies in the level of activity they are based on. Here is a comparison between the two:
| Master Budget | Flexible Budget |
|---|---|
| Prepared for a single activity level, making it a static budget. | Can be prepared for multiple activity levels, making it a dynamic budget. |
| Represents expected costs and revenues for the upcoming accounting year. | Revised master budget based on the actual activity level, allowing better comparisons with actual results. |
| Contains all budgeted revenues and costs. | Separates variable costs from fixed costs, making it easier to adjust for different production volumes. |
| Most appropriate for organizations with a consistent level of activity. | More appropriate for organizations with an increased variable cost structure. |
| Time-consuming and requires more planning due to alterations in activity levels. | Less time-consuming and easier to prepare compared to flexible budgets. |
In summary, a master budget is a financial forecast containing all budgeted revenues and costs for the upcoming accounting year, prepared for a single activity level. On the other hand, a flexible budget is a revised master budget based on the actual activity level, allowing better comparisons with actual results and making it easier to adjust for different production volumes.
- Flexible Budget vs Fixed Budget
- Master Budget vs Cash Budget
- Budgeting vs Forecasting
- Costing vs Budgeting
- Capital Budget vs Revenue Budget
- Zero Based Budgeting vs Performance Budgeting
- Variable vs Fixed Costs
- Budget vs Budgetary Control
- Incremental vs Zero-based Budgeting
- Cash Budget vs Projected Income Statement
- Standard Costing vs Budgetary Control
- Strategic vs Financial Planning
- Budget Deficit vs Fiscal Deficit
- Discretionary vs Committed Fixed Costs
- Job Costing vs Batch Costing
- Financial Accounting vs Cost Accounting
- MBA vs Masters
- Management Accounting vs Cost Accounting
- Strategic vs Operational Planning