What characterizes a fixed budget?

A fixed budget is characterized by being established for a specific period and remaining unchanged regardless of variations in activity levels. This means that, once set, the budget does not adapt to the actual performance or volume of business activity that occurs during that period. Fixed budgets are often used for planning purposes where predictability is paramount.

This characteristic allows organizations to evaluate actual results against a static metric, providing a clear basis for performance comparisons. While this may limit the budget's responsiveness to real-time conditions, it can be advantageous for control and accountability, as it standardizes expectations across departments and teams.

In contrast, budgets that change with activity levels, are adjusted periodically, or are based on flexible expense estimates do not embody the essence of a fixed budget. They incorporate variability and adaptability, which are not features of fixed budgeting.