A(n) budget is based on one predicted amount of sales or other activity measure.

Definition of a Static Budget

1. Understanding Static Budget: A static budget is a financial plan that remains unchanged regardless of actual sales or production levels. It is based on a single predicted amount of sales or another activity measure.

2. Purpose of Static Budget: The primary purpose of a static budget is to set expectations for what the organization's financial performance should look like under certain conditions. It helps in monitoring performance by comparing actual results against the budgeted figures.

3. Components: The components of a static budget typically include revenue projections, fixed and variable costs, and total expenses. These elements are usually derived from past performance, market analysis, and strategic goals.

4. Limitations: One notable limitation of a static budget is its inflexibility. Since it does not change to reflect actual activity levels, it may not provide an accurate picture of performance when actual outputs differ significantly from projections.

In summary, static budgets are crucial for planning but should be utilized with an understanding of their limitations in dynamic business environments.