The process of preparing a flexible budget involves altering those expenses that change with revenues. This is normally done on a percentage basis. For example, a certain expense, say, raw material costs, may always be a certain percentage of the total cost of production.

Then, What is a budget performance report?

Budget Performance Report is the comparison of planned budget and actual performance. It allows comparing the actual account transactions in a specific period with the budget figures of the same periods.

Considering this, What does a performance report show? A performance report addresses the outcome of an activity or the work of an individual. The report may compare actual outcomes to a budget or standard, as well as the variance between the two figures. The recipient of a performance report is expected to take action when there is an unfavorable variance.


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What is a flexible budget in accounting?

Definition: A flexible budget, also called a variable budget, is financial plan of estimated revenues and expenses based on the current actual amount of output. Management often uses flexible budgets before a period to predict both a best case and worse case scenario for the upcoming accounting period.

Why are flexible budgets useful?

It is useful for both planning purposes and control purposes and is generally used to estimate factory costs and operating costs. 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 main purpose of a flexible budget for managers?

The purpose of Flexible budget is to: a) Provide management slack in their budget b) Eliminate fluctuations in production reports c) Compare actual and budgeted results at various level of activity d) Make the annual budget process more efficient.

What are basic processes in preparing flexible budget?

The process of preparing a flexible budget involves altering those expenses that change with revenues. This is normally done on a percentage basis. For example, a certain expense, say, raw material costs, may always be a certain percentage of the total cost of production.

What is the purpose of using standard costs?

Standard Costing System. In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance. A standard costing system involves estimating the required costs of a production process.

When a flexible budget is used in performance evaluation?

When a flexible budget is used in performance evaluation, actual costs are compared to the static planning budget rather than to what the costs should have been for the actual level of activity during the period. A flexible budget should not be used when making comparisons to actual results such as actual expenses.

What is a flexible budget in accounting?

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.

What is the link between flexible budgeting and management control?

The budget designed to remain constant, regardless of the activity level reached is Fixed Budget. The budget designed to change with the change in the activity levels is Flexible Budget. Flexible budget can be easily modified in accordance with the activity level attained.

What is the difference between a static budget and a flexible budget?

The fundamental differences between static and flexible budgets are that a static budget does not change as volume changes whereas a flexible budget changes line values to reflect the level of activity. Thus, in a flexible budget the percentage remains the same while the values change to reflect changes in output.

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.

How a flexible budget is 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.

Why is a flexible budget better than a static budget?

The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace. Fixed versus variable expenses in a flexible and static budget.

What is flexible budget example?

How do you do 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 is the difference between a static budget and a flexible budget?

The fundamental differences between static and flexible budgets are that a static budget does not change as volume changes whereas a flexible budget changes line values to reflect the level of activity. Thus, in a flexible budget the percentage remains the same while the values change to reflect changes in output.

What is production budget example?

Production Budget Definition

The production budget calculates the number of units of products that must be manufactured, and is derived from a combination of the sales forecast and the planned amount of finished goods inventory to have on hand (usually as safety stock to cover for unexpected increases in demand).

What does a flexible budget look like?

A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. The budget is then compared to actual expenses for control purposes.

What are the functions of a budget officer?

The budget officer is responsible for verifying how the funds are being spent, ensuring that the company’s plans that require funding are possible within the budget limits and that the annual report for the company is created with truthful and reliable figures.

What are three types of flexible expenses?

There are three major types of expenses we all pay: fixed, variable, and periodic.

What is the link between flexible budgeting and management control?

Production Budget Definition

The production budget calculates the number of units of products that must be manufactured, and is derived from a combination of the sales forecast and the planned amount of finished goods inventory to have on hand (usually as safety stock to cover for unexpected increases in demand).

What is the budget variance?

When using a flexible budget, what will happen to fixed costs as the activity level increases within the relevant range? Fixed costs per unit will decrease.

What do you mean by zero based budgeting?

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

What is budget planning?

Budget planning is the process by which a company or individuals evaluate their earnings and expenses and project their monetary intakes and outakes for the future.

What is budget planning?

What is the link between flexible budgeting and management control? This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies.

How do you calculate activity variance?

The first step in activity-based variance analysis is to assign all overhead costs to a level of activity. Next, activity standards (standard rates) must be calculated. To reach this standard rate, the annual overhead cost is divided by the cost center’s practical capacity.

What does contribution margin tell you?

Contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.

What is a flexible budget variance?

Flexible budget variance. A flexible budget variance is any difference between the results generated by a flexible budget model and actual results. If actual revenues are inserted into a flexible budget model, this means that any variance will arise between budgeted and actual expenses, not revenues.

What is a flexible budget performance report?

Definition: A flexible budget performance report is a management report that compares the actual revenues and costs for a period with the budgeted revenues and costs based on the actual sales volume.

When using a flexible budget what will occur to fixed costs?

Contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.

What are the types of budget?

The following types of budgets are commonly used by businesses:
  • Master Budget. A master budget is an aggregate of a company’s individual budgets designed to present a complete picture of its financial activity and health.
  • Operating Budget.
  • Cash Flow Budget.
  • Financial Budget.
  • Static Budget.

What is the flexible budget formula for factory overhead?

When using a flexible budget, what will happen to fixed costs as the activity level increases within the relevant range? Fixed costs per unit will decrease.