What is a flexible budget example?
What is a 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 flexible budget discuss its importance?
The main importance of flexible budget is that it reflects the expenditure appropriate to various levels of output. The expenditure established through a flexible budget is suitable for comparison of the actual expenditure incurred with the budgeted level applicable for that particular level of activity attained.
What are the types of flexible budget?
Explanation. There are two types of budgets namely fixed budget and flexible budget. A flexible budget is prepared to represent the budgeted costs and revenues at a budgeted activity level such as the number of units produced, percentage of capacity utilized, number of man-hours devoted, and so on.
How is flexible budget prepared?
The flexible budget uses the same selling price and cost assumptions as the original budget. Variable and fixed costs do not change categories. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units.
What are three types of flexible expenses?
Flexible expense examples include groceries, dining out, entertainment, and even utilities.
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 do you mean by flexible budget what are its advantages and disadvantages?
Flexible budget is a budget that is mostly used as a static budget. It is also known as a fixed budget. A flexible budget is much more realistic than fixed budgets since it gives emphasis on cost behavior at different levels of activity. …
What are the disadvantages of flexible budget?
Pros and Cons of Flexible Budgeting
| Pros | Cons |
|---|---|
| Less-rigid resource allocation | Time consuming, requires more maintenance and oversight |
| Allows companies to address unpredicted conditions and circumstances, like market fluctuations and business volume | Limits ability to plan in some areas when budget is changing |
Is Rent a flexible expense?
In their most basic sense, fixed expenses do not change over time and flexible expenses do. In most individuals’ budgets, monthly mortgage or rent payments are fixed. Flexible expenses may change each month or only occur during certain times of the year.
What are five flexible expenses?
What is the purpose of a flexible budget?
A flexible budget is an operating budget that features alternative estimates for various line items. The idea behind the alternatives is that by planning for potential changes in production costs or sales volume, the business can respond quickly and keep the company profitable.
What are the advantages of flexible budgeting?
Here are several advantages: Usage in variable cost environment. The flexible budget is especially useful in businesses where costs are closely aligned with the level of business activity, such as a retail environment where Performance measurement. Budgeting efficiency.
What is flexible budget equation?
A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level). Flexible budgets are widely used in production and service departments. A flexible budget report will show both actual and budget cost based on the actual activity level achieved.
What is flexible budget accounting?
Flexible budget is budget typically in the form of an income statement that is adjustable to any level of activity such as units produced or units sold. In a simple flexible budget, fixed costs stay constant whereas variable and semi-variable costs change according to a standard predetermined at the beginning of an accounting period.