What are the different ways to use a flexible budget
- Basic. At its most basic level, a flexible budget simply means allowing for variation in those costs that are directly related to income.
- Intermediate. Intermediate budgets allow for variation in expenses that vary in ways that don't directly correspond with revenue.
- Advanced. ...
What are the differences between a fixed and flexible budget?
The following are the major differences between fixed budget and flexible budget:
- The budget, which remains constant, regardless of the actual output levels is known as Fixed Budget. ...
- Fixed Budget is static in nature while Flexible Budget is dynamic.
- Fixed Budget operates in only one activity level, but Flexible Budget can be operated on multiple levels of output.
What budgeted amounts appear on the flexible budget?
What budgeted amounts appear on the flexible budget? Budgeted amounts for the actual activity level achieved Within the relevant range of activity, the behavior of total costs is assumed to be linear and upward sloping. Management by exception means that material differences will be investigated. A flexible budget depicted graphically
What are differences between static and flexible budgets?
The primary difference between a Static budget and a Flexible budget
- A flexible budget calculates expenses based on actual costs.
- A flexible budgets allows managers to determine how any changes in the prices of material and labor or efficiency can impact revenue and profits.
- A static budgets are calculated using past data about the company whereas a flexible budget uses present data.
What is the purpose of the flexible budget?
Situations for preferring a Flexible Budget
- If a company is labor-intensive and where labor is a crucial factor of production. ...
- Initially, a new venture can’t predict demand for its product accurately; hence, a flexible budget can be of great help. ...
- A company producing seasonal products can opt for a flexible budget. ...
- In the fashion industry, fashion trend changes frequently. ...
What is the flexible budget formula?
Flexible budget= Fixed cost + (actual unit of activity x variable cost per unit of activity).
What is flexible budget and its importance?
The main importance of flexible budget is that it reflects the expenditure appropriate to various levels of output. The expenditure established through a flexible budget is suitable for comparison of the actual expenditure incurred with the budgeted level applicable for that particular level of activity attained.
What is flexible budget Wikipedia?
Flexibility budget – it is established for fixed cost and variable rate is determined per activity measure for variable cost. Appropriation budget – a maximum amount is established for certain expenditure based on management judgment.
What are the features of flexible budget?
Main Features of Flexible BudgetThe flexible budget covers a range of activities,A flexible budget is easy to change according to variations of production and sales levels.Flexible budget facilitates performance measurement and evaluation.It takes into account the changes in the volume of activity.More items...
What are types of budget?
Different types of budgetsMaster budget. A master budget is an aggregation of lower-level budgets created by the different functional areas in an organization. ... Operating budget. ... Cash budget. ... Financial budget. ... Labor budget. ... Static budget.
What is budget simple words?
A budget is a spending plan based on income and expenses. In other words, it's an estimate of how much money you'll make and spend over a certain period of time, such as a month or year.
What are the three main types of budgets?
The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget.
What is the purpose of the flexible budget quizlet?
The purpose of a flexible budget is to (2): compare actual and budgeted results at virtually any level of activity. The activity base that is used for a flexible budget for an overhead cost should be: the cause of the overhead cost.
What are the three types of flexible budget variances?
Favorable variances arise when actual results exceed budgeted. Unfavorable variances arise when actual results fall below budgeted. Favorable profit variances arise when actual profits exceed budgeted profits. Unfavorable profit variance occurs when actual profit falls below budgeted profit.
Which of the following is a benefit of budgeting?
Benefits of budgeting include providing "guardrails" (i.e., designated limits) for spending, achieving financial goals (if savings is included as a fixed "expense"), and for peace of mind.
Why is a flexible budget useful?
For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount. In short, the flexible budget is a more useful tool when measuring a manager's efficiency.
Why is a flexible budget more useful than a static budget?
The flexible budget is more sophisticated and useful than a static budget. (The static budget amounts do not change. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.) For costs that vary with volume or activity, the flexible budget will flex because the budget will include ...
What is flexible budget?
Definition. A flexible budget definition would be a budget that is adjusted for the actual volume. It is usually prepared for several different volume levels within a relevant range. Moreover, the flexible budget separates the fixed and variable cost, where the latter provides for that flexibility in the flexible budget.
Why is budget important?
The budget of an economic entity reflects the results of planning and control in the form of planned, expected and actual data, and the deviation of actual indicators from planned ones . It serves as an important tool for achieving business goals.
What is the budget of an economic entity?
The budget of an economic entity reflects the results of planning and control in the form of planned, expected and actual data, and the deviation of actual indicators from planned ones. It serves as an important tool for achieving business goals.
What is business cost planning?
Business cost planning can be characterized as a special decision-making process, in which information about the past financial and production activities of an economic entity is analyzed, potential resources are assessed and the organization’s goals for the future as well as the ways to achieve them are developed. The main form of enterprise cost planning is budgeting.
When analyzing planned versus actual, it is incorrect to compare the amounts of variable costs?
When analyzing planned versus actual, it is incorrect to compare the amounts of variable costs because these costs are related to different sales volumes. This problem is solved by a flexible budget – in it , the income and expenditure budget indicators are recalculated depending on the actual volume.
What is a basic flexible budget?
Basic Flexible Budget: In this budget, those expenses that vary with revenue are expressed as a percentage of sales or as cost per unit and adjusted as the output level changes.
Why is flexible budget important?
A flexible budget is an important tool for management. It helps in setting the expected costs, revenues, and profitability of the business. Further, since the flexible budget is not rigid, it can be adjusted according to the actual activity level at the end of the accounting period and used for variance analysis.
How to calculate a flexible budget?
A flexible budget can be prepared using the following steps: 1 Determine the fixed costs that are expected to be incurred during the period under consideration. 2 Identify the variable costs that are to be incurred and determine the variable cost on a per-unit basis or as a percentage of activity level. 3 Plot the variable and fixed costs for the budgeted activity level and this will lead to the creation of a flexible budget. 4 After the end of the accounting period, when the actual activity level is known, the flexible budget is adjusted in line with the actual activity level to reflect the budgeted cost for the said activity level. Variances can be calculated based on the revised budget and the actual performance.
What are the two types of budgets?
There are two types of budgets namely fixed budget and flexible budget. A flexible budget is prepared to represent the budgeted costs and revenues at a budgeted activity level such as the number of units produced, percentage of capacity utilized, number of man-hours devoted, and so on. The flexible budget will vary with each activity level ...
When is the flexible budget adjusted?
After the end of the accounting period, when the actual activity level is known , the flexible budget is adjusted in line with the actual activity level to reflect the budgeted cost for the said activity level. Variances can be calculated based on the revised budget and the actual performance.
Do variable costs require a flexible budget?
There are many companies like service industries where variable costs don’t have a major role to play and such companies do not require a flexible budget.
Is it difficult to prepare a budget?
It is quite difficult to prepare and requires experts for its preparation. It is for this reason that many companies do not prepare this budget.
What are Flexible Budgets?
A flexible budget is a budget or financial plan of estimated cost and revenue for different levels of output. The variation happens due to the change in the volume or level of activity.
How much is the flexible budget for April?
Therefore for the month of April — flexible Budget = $35,000 + ($10 x 4000) = $75,000
What does the vertical rows represent in a budget?
And, the vertical rows represent the budgeted estimates against the different levels of activity or output. The expenses categorized into fixed, variable, and semi- variable costs.
Is flexible budget important?
The flexible budget has immense importance, but it has certain disadvantages also as listed below: The preparation of a flexible budget requires skilled workers. And their availability is a crucial factor in opting for a flexible budget. It is dependent on proper accounting disclosure.
Is flexible cost relatable to budget cost?
Fixed and variable cost determination happens on an arbitrary basis. Hence flexible costs are less relatable to the correct budget cost of the level of activity.
What is flexible budget?
First, a flexible budget is a budget in which some amounts will increase or decrease when the level of activity changes. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget.
What is static budget?
If the annual budget is not changed when more or less than 50,000 items are shipped, it is referred to as a static budget. A summary of the department's static budget based on shipping 50,000 items is: