What is a flexible budget?
A flexible budget is a budget that adjusts for changes in the level of activity or output. Unlike a static budget, which is based on a fixed level of activity or output, a flexible budget is designed to be adaptable to changes in sales volume, production volume, or other measures of business activity.
What is the meaning of flexible budget?
A flexible budget is a budget that adjusts to a company's activity or volume levels. Unlike a static budget , which doesn't change from the amounts established when the company creates the budget, a flexible budget continuously changes with a business' cost variations.
What best describes a flexible budget?
A flexible budget is the exact opposite of a static budget — it allows you to adjust how much you allocate to various departments, projects, and activities based on your business' revenue and changes in sales volume.
What is an example of a flex budget?
An example of a flexible budget would be a business whose rent is always the same (a fixed cost) but whose inventory costs fluctuate (a varying cost) based on sales. The business could use a flexible budget to help plan its finances.
What is flexible actual budget?
What is a flexible budget variance? A flexible budget is a budget that accounts for an increase or decrease in expenses and revenue. While a standard or static budget is one figure over time, you calculate and adjust the flexible budget based on actual output and variable costs.
What is the difference between a budget and a flexible budget?
The static budget uses the original volume forecasted, while the flexible budget is updated for the actual volume. For example, if during May Year 1, the company budgeted 10,000 units, but actually sold 12,000 units, then the static budget would use 10,000 units and the flexible budget would use 12,000 units.
What is the difference between a flexible budget and a standard budget?
Unlike a static budget, a flexible budget changes or fluctuates with changes in sales, production volumes, or business activity. A flexible budget might be used, for example, if additional raw materials are needed as production volumes increase due to seasonality in sales.
What is a flexible budget quizlet?
A flexible budget is a budget developed using the same standards that were used to created the static budget but based on actual production. It is essentially the budget that would have been developed had the actual sales and production output been known.
What is another name for flexible budget?
A flexible budget is also called a variable budget.
Why use a flexible budget?
The most significant advantage of flexible budgets over static ones is the ability to adapt to changes in the real world. Nothing ever stays the same, and management has the responsibility to respond to unanticipated adverse conditions and to take advantage of unexpected opportunities.
Why is a flexible budget important?
Flexible budgeting offers numerous advantages to businesses. Some of the key advantages of flexible budgeting include: An accurate performance assessment: Flexible budgeting allows for adjustments based on actual activity levels, providing a more accurate comparison between forecasted vs actual performance.
When should you flex a budget?
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 companies use flexible budgets?
Organizations such as restaurants, manufacturing firms and even hotels use flexible budgets because they react rapidly to keep the organization's business profitable. It enables these businesses or organizations to meet the evolving daily needs of the company's business operations.
Does flexible budget use actual cost?
The flexible budget uses the same cost formulas as the planning budget but is prepared using the actual sales quantity as the activity driver.
What are the disadvantages of a flexible budget?
some of the disadvantages of a flexible budget, which include: It can be time-consuming to figure out just how variant those variable costs might be. And time is often at a premium during budget season.
How do you create a flexible budget?
The formula has three components: fixed costs, variable costs, and activity level. You can use the formula: flexible budget = fixed costs + (variable cost per unit x activity level).
What are the two types of flexible budget?
The flexible budget can be categorized into three different types. These include the basic flexible budget, intermediate flexible budget, and the advanced flexible budget.
Is a flexible budget a master budget?
A flexible budget is a revised master budget based on the actual activity level achieved for a period. The master budget is established before the period begins for planning purposes, and the flexible budget is established after the period ends for control and evaluation purposes.
What are three benefits of using flexible budget?
Flexible budgets offer several advantages for business control, such as providing a more accurate and realistic measure of performance, allowing the business to identify and analyze variances between actual and budgeted results, and enabling the business to adjust operations and strategies in response to changing ...
What is the #1 rule of budgeting?
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
What budget should always come first?
In a master budget, the sales budget is the first budget prepared. The sales budget sets the foundation for other budgets because it is based on production. Therefore, production is based on forecasted sales.
What is the most important rule for budgets?
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
What is the purpose of the flexible budget quizlet?
The purpose of the flexible budget is to: -allow management some latitude in meeting goals. -eliminate cyclical fluctuations in production reports by ignoring variable costs. -compare actual and budgeted results at virtually any level of production.
What is the main purpose of a flexible budget for managers?
Managers use a technique known as flexible budgeting to deal with budgetary adjustments. A flexible operating budget is a special kind of budget that provides detailed information about budgeted expenses (and revenues) at various levels of output.
Is a flexible budget used for planning?
A flexible budget is the planning budget forecasted using the actual level of activity instead of the planned level of activity. The flexible budget uses the same cost formulas as the planning budget but is prepared using the actual sales quantity as the activity driver.
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