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 is a flexible budget and how is it prepared?
Preparation of a Flexible Budget. 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 is the flexible budget amount?
A flexible budget is
a budget that adjusts or flexes with changes in volume or activity
. The flexible budget is more sophisticated and useful than a static budget. (The static budget amounts do not change. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.)
What is a flexible budget approach?
A flexible budget
adjusts based on changes in actual revenue or other activities
. The result is a budget that is fairly closely aligned with actual results. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels.
What are the flexible budget uses?
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.
How many ways can you prepare a flexible budget?
There are
three methods
of preparing a flexible budget:
Tabular Method or Multi-Activity Method. 2. Charting Method.
What are three types of flexible expenses?
Flexible expense examples include
groceries, dining out, entertainment, and even utilities
.
What does a flexible budget look like?
This type of budget is most often
based on changes in a company’s actual revenue and uses percentages of revenue rather than static numbers
. For example, a flexible budget may allot 25% of a company’s revenue to salary as opposed to allotting $100,000 to salary in a given year.
What are the characteristics 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 does a flexible budget takes into account?
Flexible budgets take into account
how changes in production affect costs
. So if production goes up, costs with go up. In converse, if we were to sell fewer shoes, our costs would go down!
What is 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
. The fixed budget is static and doesn’t change at all. … Flexible budget, on the other hand, is semi-variable.
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.
Does flexible budget include fixed costs?
Because
fixed costs do not vary
during the period in question, fixed costs behave the same in a flexible budget as they do in a static, or fixed, budget. … Therefore, flexible budgets contain more detailed information regarding specific fixed costs and their associated variances between budget and actual.
What is flexible budget and its advantages?
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.
Is flexible budget the same as actual?
First, a flexible budget is a budget in which some amounts will increase or decrease when the level of activity changes. A flexible budget variance is the difference between 1) an
actual
amount, and 2) the amount allowed by the flexible budget.
What order are budgets prepared?
Preparing a financial budget first requires preparing
the capital asset budget, the cash budgets, and the budgeted balance sheet
. The capital asset budget represents a significant investment in cash, and the amount is carried to the cash budget.
