# What is a fixed budget?

## 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.