Static budget
In one sentenceA budget prepared at a single level of activity that stays there for the whole period, even if actual volume differs from the plan.
Simply put
A static budget is the plan as approved at the start of the year. It suits items that do not change with volume, such as rent and fixed salaries.
But comparing variable costs with it can mislead you: if you sold more than planned, your costs will look overspent, even though the increase is normal.
Worked example
The same factory planned for 10,000 units (variable cost 20 SAR and fixed cost 50,000 SAR) and produced 12,000 units at an actual cost of 300,000 SAR.
Static budget (10,000 units)10,000 × 20 + 50,000 = 250,000 SAR
Actual cost (12,000 units)300,000 SAR
Apparent difference = 300,000 − 250,00050,000 SAR
Formula: Actual cost − budget at planned volume
Don't confuse it with
Flexible budgetIn the same example, the flexible budget shows a real variance of only 10,000 SAR, and the remaining 40,000 SAR is due to higher production.