Which budget type is prepared under the assumption of a single activity or volume level?

The fixed budget is prepared under the assumption of a single level of activity or volume. This type of budget remains unchanged and does not adapt to actual levels of activity; it is based on predictions for a specific, predetermined volume of output or sales.

In practical terms, if an organization estimates that it will operate at a certain sales level or volume of services, the fixed budget will outline expected revenues and expenses based on that singular assumption. This could be beneficial for planning and ensuring that necessary resources are allocated accordingly.

Unlike a flexible budget, which adjusts for different levels of activity, a fixed budget is not designed to reflect the changes in the actual level of operations. This distinction is crucial when analyzing budget performance because the fixed budget may not provide an accurate reflection of financial outcomes if volumes differ significantly from what was anticipated.

Operating budgets and cash budgets serve different purposes and usually encompass multiple periods and considerations beyond a single level of activity, focusing instead on overall operational plans and cash flow needs, respectively.