“Team B” Flexible Budget
Tenecia Blevins, Zokieya Canida, Robert Edmonds, Carl Hignite, Harold Smith Accounting - ACC/561
September 1, 2014
Organizations in today’s ever-changing global market make use of budgeting to help measure performance, plan, and control its business operations. Organizational leaders make use of flexible budgets to help take into consideration; various uncertainties that may emerge after business operations commence. According to Kimmel, Weygandt, and Kieso (2011), organizations additionally make use of flexible budgets to help them address changes in the volume of activity as well as for performance evaluation tools when used in conjunction with the static budget. Within the subsequent paragraphs “Team B,” will attempt to answer what are the advantages of a flexible budget versus the static budget. How the flexible utilizes a contribution format. How a flexible budget is useful for variance analysis. Finally “Team B” will attempt to provide information pertaining to the types of variances computed when making use of a flexible budget. Advantages of a flexible budget over to a static budget
The distinct difference between a flexible and static budget is that a flexible budget projects budget data for various levels of activity, whereas the static budget is a projection of budget data at one level of activity (Kimmel et al., 2011). The flexible budget uses the master budget as its basis. The flexible budget is a series of static budgets at different levels of activity. It recognizes that the budgetary process is beneficial if it is adaptable to changed organizational operating conditions. (Kimmel et al., 2011). A static budget remains at one amount no matter the volume of the activity the company foresees, because it projects a fixed level of input, and output. The flexible budget can help an organization continuously recalculate its expenses depending on the revenue incurred additionally an organization can make use of a flexible budget for the entire organization. Flexible budgets make it easier to see if an investment is possible and can empower you to determine if you can afford to take a risk. Whereas, the static budget can help the organization keep certain division cost on the right track (Thompson, 2008). How a flexible budget utilizes a contribution format
The flexible budget is a more dynamic form of budget reporting that is affected only by the amount of actual revenue generated. Instead of using fixed amounts (like the static budget), the “flexible” budget makes use of percentages of the revenue garnered. The contribution margin focuses on the ‘per unit’ assets and liabilities according to Kimmel et al., (2011). The flexible budget performance evaluation tool uses this format at the end of each period to recalculate costs based on actual production. Since the contribution margin pinpoints the percentage of revenue per unit, the flexible budget tool can use this format to isolate costs pertinent to the function of its end goal (Kimmel et al., 2011). The end goal of the flexible budget is to help an organization determine how much its needs to yield the actual output. “For example, if the output is 700,000 units, organizations should compare the actual cost for 700,000 units to what the company should have spent to produce these units. The contribution margin format powers the flexible budget performance by allowing the mangers to pinpoint the revenue from each unit (Kimmel et al., 2011). How a flexible budget is useful for variance analysis
A flexible budget can help an organization gather budget data from more than one activity with the ability to adjust for changes in volume or activity according to Kimmel et al., (2011). This particular type of budget is multiple static budgets combined into the flexible budget can help provide more transparency within the specified areas of an organization. When flexible budgeting...
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