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 is the flexible budget?
A flexible budget is a budget that adjusts to the activity or volume levels of a company. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously “flexes” with a business’s variations in costs.
What type of business would benefit from using a flexible budget?
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.
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Why do companies use flexible budgeting?
A flexible budget is designed to change based on revenue or production levels. Unlike a static budget, which can be prepared in anticipation of performance, a flexible budget allows you to adjust the original master budget using actual sales and/or production volume.
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What is flexible budget and 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 three types of flexible expenses?
Flexible expense examples include groceries, dining out, entertainment, and even utilities.
What are the advantages of flexible budget?
The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can’t account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month.
What is the use of flexible budget?
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 are the advantages of flexible budgeting?
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 flexible budgeting and why is it used?
Flexible budgeting can be used to more easily update a budget for which revenue or other activity figures have not yet been finalized. Under this approach, managers give their approval for all fixed expenses, as well as variable expenses as a proportion of revenues or other activity measures.
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 examples of flexible expenses?
Flexible expense examples include groceries, dining out, entertainment, and even utilities….Here are some common non-essential variable expenses:
- Cable Television.
- Subscription Services (Netflix, Hulu, Amazon Prime, etc.)
- Clothing.
- Dining Out.
- Entertainment (Movies, music, books, etc.)
What are the two uses of flexible budget?
Budgeting efficiency. Flexible budgeting can be used to more easily update a budget for which revenue or other activity figures have not yet been finalized. Under this approach, managers give their approval for all fixed expenses, as well as variable expenses as a proportion of revenues or other activity measures.
What are the benefits of flexible budgeting?
What are the three types of flexible budget variances?
Favorable variances arise when actual results exceed budgeted. Unfavorable variances arise when actual results fall below budgeted. Favorable profit variances arise when actual profits exceed budgeted profits. Unfavorable profit variance occurs when actual profit falls below budgeted profit.
Who uses flexible budget?
A flexible budget works for people who work on commission or who have expenses that vary widely from month to month. The important aspect of using a flexible budget is to spend equal to or less than the income each month.
