Communicating the Budget Budgets have to be realistic and achievable. This is called participative budgeting. A static budget is a budget based on one level of activity. For simplicity, we will assume that there are no other costs. It is important that comparisons are made at the same level of activity.
Overheads cost more than planned too.
The flexible budget is dynamic in nature. The difference between budgeted and actual amounts is called a variance. They provide a benchmark. 12 kg of raw material produce 10 units of a finished product. Actual and standard price are compared.