What is a flexible budget?

Definition of a Flexible Budget A flexible budget is a budget that adjusts or flexes with changes in volume or activity. For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount.

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Correspondingly, what is flexible budget example?

Definition and example. A flexible budget is a budget or financial plan that varies according to the company's needs. Flexible budgets calculate, for example, different levels of expenditure for variable costs. These levels vary depending on the changes in revenue.

Similarly, how do you calculate a flexible budget? To compute the value of the flexible budget, multiply the variable cost per unit by the actual production volume. Here, the figure indicates that the variable costs of producing 125,000 should total $162,500 (125,000 units x $1.30).

Hereof, what is a flexible budget and how is it prepared?

1. Tabular Method: According to this method, a flexible budget is prepared for different levels of activity showing different activity or capacity levels in horizontal columns and budgeted figures against different activity or capacity levels in the vertical columns.

What are the benefits of a flexible budget?

Flexible Budgets Let You React to Opportunities One of the main advantages of a flexible budget is that they let you tie spending to sales, allowing you to increase spending to take advantage of opportunities presented by better-than-expected revenues.

Related Question Answers

What is flexible budget formula?

To compute the value of the flexible budget, multiply the variable cost per unit by the actual production volume. Here, the figure indicates that the variable costs of producing 125,000 should total $162,500 (125,000 units x $1.30).

What are three types of flexible expenses?

Here is a list of categories to include in your fixed expenses:

• Mortgage(s)
• Rent.
• Property taxes (if paying monthly)
• Strata fee / condo fee.
• House / tenant insurance.
• Utility bills (cable, cell, electricity, water, etc.)
• Lease / car loan payment.
• Vehicle insurance (if paying monthly)

What is difference between fixed and flexible budget?

Key Differences Between Fixed and Flexible Budget A fixed budget is a budget that doesn't change due to any change in activity level or output level. The flexible budget is a budget that changes as per the activity level or production of units. Flexible budget, on the other hand, is semi-variable.

What is the difference between master budget and flexible budget?

The key difference between master budget and flexible budget is that master budget is a financial forecast that contains all budgeted revenues and costs for the upcoming accounting year whereas flexible budget is a budget that is adjusted by incorporating the changes in the number of units produced.

What is the formula for flexible budget variance?

This means there is a favorable flexible budget variance related to revenue of $1,600 (calculated as 800 units x $2 per unit). In addition, the model contains an assumption that the cost of goods sold per unit will be $45. In the month, the actual cost per unit turns out to be $50.

What is the main purpose of a flexible budget for managers?

The main purposes of flexible budget for the managers are: 1. Used as a planning tool to predict likely financial results at different levels of activity. 2. More Control over cost: Since Flexible budgets are based on the actual figures and not budgeted it helps in providing more control over cost.

What is meant by zero based budgeting?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs.

What is a fixed budget?

Definition of Fixed Budget A fixed budget is a budget that does not change or flex for increases or decreases in volume. A fixed budget is also known as a static budget.

How do you prepare a flexible budget performance report?

A flexible budget performance report will scale your initial budget to allow for a meaningful comparison.

1. Separate the initial budget into fixed and variable expenses.
2. Divide the initial budget for variable expenses by the estimated production to get your initial budget per unit produced.

What does a flexible budget provide?

A flexible budget is usually designed to predict effects of changes in volume and how that affects revenues and expenses. In order to accurately predict the changes in costs, management has to identify the fixed costs and the variable costs.

What is a flexible budget report?

A flexible budget performance report is used to compare actual results for a period to the budgeted results generated by a flexible budget. If the flexible budget model is designed to adjust to actual sales inputs in a reasonable manner, then the resulting performance report should closely align with actual expenses.

What companies use flexible budgets?

Organizations such as restaurants, manufacturing companies and even hotels use flexible budget because these budgets respond quickly to keep the company of the organization profitable. It allows these companies or organizations to meet the changing everyday needs of the company's business activities.