Flexible Budget Research

Topics: Costs, Variable cost, Fixed cost Pages: 6 (1462 words) Published: April 27, 2011

budget is considered as a standard to facilitate control work activities of the organization. Budgets are planning tools prepared firstly to start the period being budgeted. Valuable information about the performance contains of the difference between the actual results and the planning budgets. Therefore, budgets are both planning tools and performance evaluation.

The most common important element in budget is some measure of anticipated output such as the number of units to be produce, the number of units to be sold, the cost of good sold_direct material, direct labor, overhead cost,.. need in production, selling and administrative expenses,….

The flexible budget is a performance evaluation tool which can not be prepared before the end of period being budgeted. It adjusts the static budget for actual level of output. Questions appeared in mind when you are going to construct a flexible budget are “If I had known at the beginning of the period what my units produce or units sold would be, what would my budget have looked like?”. So, a budget is very essential for evaluating the efficiency of organizations (from manufacturing business to service business) It provides a general direction for performing activities, help the business minimize the waste and redundancy. More importantly, a great budget makes company reduce the impact of change in order to give the right actions timely.

Our paper presents the overview of flexible budget, steps to build up a flexible budget, and the effects of flexible budget in reality. Our study provides some useful information to establish strategies attaining the organizational goals. To manage well a corporation, the management of company should set up an accurate budget for different types of value creation led to evaluate the income of company in future.

I/ The overview of flexible budget
1. Definition:
A flexible budget (dynamic budget) is a budget which is designed to change in accordance with the level of activities. It is also known as variable budget as the budget recognizes the difference in cost behavior like fixed and variable production costs based on the change of production level and line value in output. It is prepared by adjusting the line value in static budget to match the actual level of output at the end of the period. A flexible budget is a set of revenue and expense projections at various production or sale volume. The cost allowance for each expenses are able to vary as production or sale vary.

2. The purposes of flexible budget
- Allow businesses to respond quickly to change in order to maximize profits. - Help plan for potential changes in production cost or sales volume. - Eliminate cyclical fluctuations in production reports. - Reduce the total time in preparing in the annual budget. - Compare actual and budgeted result at virtually every level of production.

3. The differences between fixed budget and flexible budget
Fixed budget
- a plan for a single level of production
- be prepared for entire production facility
- consider all cost
- based on a fixed standard
- based on one specific level of a production
- not be changed after the period begins
- concern only with the future acquisitions of fixed assets - includes only fixed cost
Flexible budget
- several plans for different level of production
- apply only to a single department
- consider only variable cost
- allow management lactitude in meeting goals
- be prepared for any production level within a relevant range - be changed after the period begins
- concern with expenses that vary with sales
- includes only variable cost

II/ Steps to construct flexible budget:
The following steps are used to prepare a flexible budget:
1. Determine the budgeted variable cost per unit of output. Also determine the budgeted sales...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Flexible Budget Essay
  • flexible budget Essay
  • budget Essay
  • Essay about Flexible Budgets Acc543
  • Flexible Budgets Essay
  • Essay on Flexible Budgets
  • Flexible Budget Essay
  • Essay about Flexible Budgets Acc 543

Become a StudyMode Member

Sign Up - It's Free