This website uses cookies to ensure you have the best experience. Learn more

Flexible Budget Essay

1139 words - 5 pages

Flexible Budget
ACC 543
June 20, 2011

Flexible Budget
In today’s business, a flexible budget helps plan for the future. This tool compiles expense, revenue, production, and cost data. The data produced from the flexible budget provides an organization with a tool for performance evaluation. This can assist management in determining the most profitable sales and production levels, in addition to determining fixed and variable costs. Examining how the flexible budget relates to fixed and variable costs as well as analyzing the correlation between the static and flexible budget leads to cost-volume-profit analysis.
Static and Flexible Budgets
Fixed cost, such as ...view middle of the document...

Because variable cost may vary, the company has the possibility to spend less than the planned amount which would cause a favorable affect on the flexible budget and allow money to be used elsewhere.

Fixed and Variable Costs in a Flexible Budget
Unlike the master budget, also called static budget because it remains unchanged disregarding any possible changes in the volume of activity, the flexible budget is a budget that adjusts accordingly to reflect changes in the volume of activity.

Fixed and variable costs are the two major components of the total overhead costs in a flexible budget. Fixed costs, or sunk costs are those that remain unchanged in production activity level or sales volume. Examples of facility sustaining costs include building rent or depreciation, personnel administrative and training costs, taxes, insurance, and advertising. On the other hand variable costs are those costs that have a direct relationship with changes in activity level. Variable costs include direct materials, direct labor, inspections, packaging, and shipping and handling while product level costs include quality inspection, engineering design, patents, and inventory holding costs.
Even though fixed costs are not affected by fluctuations in the production activity level, they may change with time as a result of discretionary costs incurred by the company - advertising is an example of a company’s discretionary cost. Fixed costs, or sunk costs, should not be taken into consideration by management while making a business decision because these are costs that the company will incur independently of the volume of sales or production. Some costs may have both fixed and variable elements.
It is critical for management to understand the relationship between fixed and variable costs and the increase in either production or sales activity levels. Fixed costs do not change in total, but they change on a per unit basis – as production increases the amount of fixed costs per unit decrease. Conversely, variable costs remain constant on a per unit basis, but they increase as production levels increase and decrease if production levels also decrease (Edmonds et al, 2007).
Cost-Volume-Profit Analysis
A cost-volume-profit (CVP) analysis reflects how changes in a company’s costs and volume will affect its operating income and net income. To be able to perform a CVP analysis, the company must have the amounts of variable and fixed costs, the sales price per unit, and the desired level of profit. CVP...

Other Papers Like Flexible Budget

Maria Garcia Essay

614 words - 3 pages | | Overhead | Fixed | Variable | Flexible-Budget Variance | 4000 U | 17000 U | 2300 U | Production- Volume Variance | 900 U | 900 U | NA | Spending Variance | 3600 U | 1700 U | 1900 U | Efficiency Variance | 4000 U | NA | 400 U | Spending Variance- Acctual Incurred-budgeted allowed of hours of input Fixed 14200-12500= 1700 1700+1900=3600 Variable 13300-11400= 1900 Flexible-Budget Variance-Actual Results from flexible budget

Term Paper

3240 words - 13 pages together to obtain master budget. • Time saving: Incremental budget allows the managers to perform other important functions unlike zero and activity budgeting which require to establish decision package, activity etc. • Flexibility: Incremental budgeting is flexible, this allows for any changes to be traced quickly compared to other forms of budgeting. Disadvantages of Incremental Budgeting

Facts and Figures

2360 words - 10 pages . Budgets may be classified on the following bases – 1. Time­Period 2. Conditions 3. Capacity 4. Coverage a. Long­term Budget & b. Short­term Budget a. Basic Budget and b. Current Budget a. Fixed Budget and b. Flexible Budget a. Functional Budget and b. Master Budget 1. BASED ON TIME PERIOD: Long Term Budget a. Budgets which are prepared for periods longer than a year are called Long­Term Budgets. b. Such Budgets are helpful in

Financial Management

2329 words - 10 pages their goals. A flexible budgeting system is a common budgeting system that use by the company. A flexible budgeting system is a budget system which is designed to change in accordance with the level of activity attained (Lohrmann, Glenn M 1989). Sometimes flexible budgeting system also known as variable budget. The flexible budgeting system are complement the used of fixed budget, so they can apply in more than one context. The differences

Business Discussion

669 words - 3 pages to consider when reviewing an operating budget in order to properly evaluate the financial performance of the organization. There is not a single correct way to prepare an operating budget, and its development depends on several individual factors of the organization. For example, a static budget is based on a single level of operations and the budgeted expense amounts never change. Static budgets can be used to plan and set goals. A flexible

Family Budget

5449 words - 22 pages chaotic or random spending. It can also help a family save money and pay off debt. But when creating a family budget, it is important to allow for both fixed and flexible expenses. Having a budget that's too strict can cause more tension than good financial results. A family budget, while important, should make some room for fun. Other People Are Reading How to Live On a Limited Budget With Your Family The Best Family Budget Spreadsheet

Jet 2 Task 2

1771 words - 8 pages that money is limited and that there will not be any room for expansion in the near foreseeable future. There is no cash on hand so debt cannot be reduced and the owners will not be getting any dividends. 2.A. A budget that is flexible will allow for many levels of activity. When activity in the flexible budget increases the cost will also increase. Static budgets only show one level of activity but flexible budgets use cost amounts based on levels

Hcs-405 Week 3 Healthcare Financial Terms Worksheet

545 words - 3 pages | Costs related to Materials used for production or labor costs| | |goods or services. |are examples of direct costs because they are directly related to | | | |producing goods or services. | |Flexible budget |Budget that is made by using budgeted revenue and | If a

Ma225 Managerial Accounting Wk7 Assignment

783 words - 4 pages . BE10-3 In Paige Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2014, direct labor totaling $204,000 is incurred in working 10,400 hours. Prepare (a) a static budget report and (b) a flexible budget report. Evaluate the usefulness of each report. Solution: a) PAIGE COMPANY Static Direct Labor Budget Report For the Month Ended January 31, 2014

Danshui Report

1048 words - 5 pages fragile causes it can be damaged easily during installation process. 10. Current method of preparing budget may cause misinterpretation of the performance therefore flexible budget should be used to compare the actual performance. SOLUTIONS A. Wages for workers should increase more than 30% to attract workers. Others incentive should be include attracting skilled workers to work with the company in order to increase the productivity of

Just in Time Concept

2543 words - 11 pages revised budget may require revision of standards or stock valuations which is time consuming. A Flexible budget is a budget which, by recognising different cost behaviour patterns, is designed to change as volumes of output change. It can be used at both the planning stage and the budget review stage. The purpose of a flexible budget is to develop an estimate or estimates of cost for one or more levels of activity. Activity levels are typically

Related Essays

Flexible Budget Essay

368 words - 2 pages The flexible budget uses the same selling price and cost assumptions as in a original budget. Variable and fixed costs do not change categories. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units. The important thing to remember in preparing a flexible budget is that if an amount, cost or revenue, was variable when the original budget was prepared, that amount is

Flexible Budget Essay

3607 words - 15 pages budgeting methodology Bacardi Limited developed for measuring performance improvements in sustainability KPIs. Bacardi Efficiency Index Method (BEIM): A Flexible Budget Application The example that follows is a hypothetical illustration of the innovative application of flexible budgeting to sustainability performance measures by Bacardi Limited. The company begins by measuring the relationship between the amount of a sustainability KPI

Master & Flexible Budget Essay

895 words - 4 pages : Master and Flexible Budgets Guillermo Furniture: Master and Flexible Budgets A master budget can be a communication tool in which the company’s employees can perceive how their hard work affects the company’s goals. The budget is an outline of a company's plans that sets detailed goals for an organization regarding sales, production, distribution, and financing. This tool can also reveal

Flexable Budget Essay

1146 words - 5 pages University of Phoenix Course: Acc/543 Managerial Accounting and Legal Aspects of Business Course Instructor: Professor Squirrel Flexible Budgets Introduction The flexible budget is useful for cash forecasting because it is based upon the estimation of a variety of activity volumes. The usefulness of a flexible budget is founded in the ability to compare potential level of performance to the expected level. It is also a better