A flexible budget is prepared after making an intelligent classification of all expenses between fixed, semi-variables and variable because the usefulness of such a budget depends upon the accuracy with which the expenses can be classified.
What is a Flexible Budget? A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs.
Beside this, What is flexible budget example?
Example of a Flexible Budget ABC Company has a budget of $10 million in revenues and a $4 million cost of goods sold. Of the $4 million in budgeted cost of goods sold, $1 million is fixed, and $3 million varies directly with revenue. Thus, the variable portion of the cost of goods sold is 30% of revenues.
Likewise, When should flexible budget be used?
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.
Also, What is flexed budget with example?
This type of budget is most often based on changes in a company’s actual revenue and uses percentages of revenue rather than static numbers. For example, a flexible budget may allot 25% of a company’s revenue to salary as opposed to allotting $100,000 to salary in a given year.
What types of organizations might use flexible budgets?
Organizations such as restaurants, manufacturing companies and even hotels use flexible budget because these budgets respond quickly to keep the company of the organization profitable. It allows these companies or organizations to meet the changing everyday needs of the company’s business activities.
21 Related Question Answers Found
What is the difference between flexible and static budget?
A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during management’s planning process. A static budget, on the other hand, remains the same even if there are significant changes from the assumptions made during planning.
When would you use a flexible budget?
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.
What is a flexible budget?
What is a Flexible Budget? A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs.
What is the advantage of using a flexible budget?
The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can’t account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month.
What are examples of flexible expenses?
Flexible expense examples include groceries, dining out, entertainment, and even utilities. Learn how you can master your personal finances by cutting back on these expenses and putting more money where it matters.
What is meant by flexible budget?
A flexible budget is a budget that adjusts to the activity or volume levels of a company. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously “flexes” with a business’s variations in costs.
Why is it important to have a flexible budget for performance analysis?
Flexible budget is a budget that is mostly used as a static budget and basically changes with the changes occurring in the volume or activity held in production, also helpful for increasing the manager’s efficiency and effectiveness because it is set to benchmark for the actual performance of the company.
What is a flexible budget and how is it prepared?
A flexible budget is one based on different volumes of sales. A flexible budget flexes the static budget for each anticipated level of production. This flexibility allows management to estimate what the budgeted numbers would look like at various levels of sales.
What are examples of fixed expenses?
Examples of fixed costs include rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities.
Who uses flexible budgets?
A flexible budget works for people who work on commission or who have expenses that vary widely from month to month. The important aspect of using a flexible budget is to spend equal to or less than the income each month.
Is food a fixed expense?
Fixed expenses are your weekly, monthly, or annual bills that don’t fluctuate. These include things like mortgage or rent payments, car payments, insurance premiums, utility bills, and the average amount you spend on groceries.
What is a flexed budget?
A flexible budget, or “flex” budget varies with changes in the amount of actual revenue earned. In its simplest form, the flex budget will use percentages of revenue for certain expenses, rather than the usual fixed numbers.
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