Table of Contents
- 1 What is flexible budget example?
- 2 What is a flexible budget and how is it prepared?
- 3 What is the difference between flexible budget and flexed budget?
- 4 What are the features of flexible budget?
- 5 What is the difference between a flexible budget and an actual budget?
- 6 How do you create a flexible budget?
- 7 What are the steps to developing a flexible budget?
- 8 When and why to use flexible budgets?
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.
What is a flexible budget and how is it prepared?
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 the purpose of flexible budgets?
The flexible budget can be used for the determination of budgeted sales, costs, and profits at different activity levels. It helps the management to decide the level of output to be produced in order to generate profits for the business based on budgeted cost at different activity levels and budgeted sales.
What is flexible budget formula?
Dividing total cost of each category by the budgeted production level results in variable cost per unit of $0.50 for indirect materials, $0.40 for indirect labor, and $0.40 for utilities. To compute the value of the flexible budget, multiply the variable cost per unit by the actual production volume.
What is the difference between flexible budget and flexed budget?
Ensure you know the difference between these terms. Flexible budgeting happens at the beginning of a budgeting period—revenue, costs, and profit are forecast across a range of activity levels. With this information, a flexed budget can then be created at the end of the budget period based on the actual activity level.
What are the features of flexible budget?
Main Features of Flexible Budget
- The 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.
What are the characteristics of a flexible budget?
What are the advantages and disadvantages of a flexible budget?
Pros and Cons of Flexible Budgeting
| Pros | Cons |
|---|---|
| Better enables businesses to pursue new opportunities and mitigate risk | Predictions have a shorter lifespan — months rather than quarters |
| More accurately reflects the state of finances | Less accountability to adhere to original budget |
| Accounts for unexpected expenses |
What is the difference between a flexible budget and an actual budget?
Variances or differences in the actual budget give a small business important information about performance elements such as overhead costs and profit. A flexible budget is a kind of budget that can easily change input variables over time. It forecast revenues and expenses with a variety of activity levels.
How do you create a flexible budget?
How to create a flexible budget
- Identify which costs are variable and which costs are fixed. Fixed costs typically include expenses such as rent and monthly marketing costs.
- Divide the budget.
- Create your budget with set fixed costs.
- Update the budget.
- Input and compare.
Why is flexible budget better than fixed budget?
The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace. Fixed versus variable expenses in a flexible and static budget.
What are the differences between a fixed and flexible budget?
Fixed Budget operates in only one activity level, but Flexible Budget can be operated on multiple levels of output. Fixed Budget is based on the assumption, whereas Flexible Budget is realistic. Fixed Budget is inelastic, as it cannot be re-casted as per the actual output.
What are the steps to developing a flexible budget?
Decide a range of activity for which the budget is to be prepared.
When and why to use flexible budgets?
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. It is useful for both planning purposes and control purposes and is generally used to estimate factory costs and operating costs.
What is a flexible budget and how are they used?
A flexible budget, on the other hand, is a series of budgets prepared for various levels of activities, revenues and expenses. Flexible budgets get modified during the year for actual sales levels, changes in cost of production and virtually any other change in business operating conditions.