A budget prepared at a single volume of activity is referred to as a _______. Strategic budget static budget standard budget flexible budget. A (static budget/flexible budget) is not designed to change with changes in activity level. A static budget is based on planned inputs and outputs for each of the company’s departments and divisions.
- The difference between an actual amount and thebudgeted amount.
- A business owner can also use the information contained in the budget report to expose problem areas in operations.
- Overall it is a very beneficial tool for every organization for product profitability and cost analysis.
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The flexible budget illustration for Mooster’s Dairy was prepared after actual production was known. While this tool is useful for performance evaluation, it does little to aid advance planning. But, flexible budgets can also be useful planning tools if prepared in advance. For instance, budgeting report Mooster’s Dairy might anticipate alternative volumes based on temperature-related fluctuations in customer demand for ice cream. These fluctuations will be very important to managers as they plan daily staffing and purchases of milk and cream to support the manufacturing operation.
Static Budgets vs. Flexible Budgets
Assume all three direct-cost items shown are variable costs. Is the president’s pleasure justified? Prepare a revised performance report https://www.bookstime.com/ that uses a flexible budget and a static budget. The static budget is used as the basis from which actual results are compared.
Non-profits and other companies relying on donations and grants will usually use a static budget for all of their budgeting. A flexible budget will show the variance in both revenue and spending. Selected information may also be shared with a business’s suppliers and customers via electronic data interchange. The net result is that the supply chain is immediately adjusted to match raw material orders to actual production needs, thereby eliminating billions of dollars of raw material waste and scrap. It perhaps goes without saying that computers are extremely helpful in preparing budget information that is easily flexed for changes in volume. Indeed, even the preparation of the very simple illustrative information for Mooster’s Dairy was aided by an electronic spreadsheet.
c. variable costs and fixed costs.
That can generate a lot of white noise that a flexible budget would weed out. Costs that change abruptly at different levels of activity because the resources are available only in indivisible chunks are called ________. 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. Also, temporary staff or additional employees needed for overtime during busy times are best budgeted using a flexible budget versus a static one. Budgets play a key role in helping companies track their finances, analyze their expenses, and identify ways to maximize their profits. A static budget is one that remains constant even as other factors, such as sales volume and revenue, change.