A fixed budget is prepared under what assumption?

A fixed budget is prepared under the assumption of a single anticipated activity level. This means that the budget is created based on a specific level of output or service delivery expected for a given period. The fixed budget does not adjust for changes in activity levels, which makes it effective for planning and monitoring costs when the expected level of services or operations remains stable.

By relying on a single anticipated activity level, organizations can forecast expenses, allocate resources, and establish financial controls for that particular level of operation. This level of predictability is essential for managing costs, although it can be a limitation if the actual business activity significantly deviates from the initial estimates.

Other options such as multiple levels of activity, a variety of income sources, or current market conditions indicate a more dynamic budgeting approach which aligns more with flexible budgets or variable budgeting, where adjustments can be made based on actual performance or varying scenarios. In contrast, the fixed budget assumes that the anticipated activity level will remain constant and does not account for variability in operations.