Flexible Budgets Acc543

Flexible Budgets squad ACC/543 Professor Deborah Fitzgerald Thomas University of Phoenix 2010 Team B, You have d ane a great job on the assignment. I have noted some minor issues to help you on future assignments. Abstract The character of this paper is to give an overview of the budget process. It analyzes flexible budgets, discusses the relationship between fixed and variable cost, explores the differences between inactive and flexible budgets, and how budgets assist in the cost-volume- lucreability analysis. The Purpose of Flexible Budgets A budget is a tool mathematical function by line of workes to plan for upcoming revenues and expenses.Businesses understand the difficulty of planning for the future. Circumstances inevitably arise that move change the outlook of a companys monetary picture overnight. Intelligent businesses look to augment flexibility. To do this, businesses explore the relationship between fixed and variable be, incorporate techniques to transform non effervescent budgets, and use flexible budgets to perform cost-volume-profit analysis. The relationship between fixed and variable costs used in a flexible budget A flexible budget is a statement of projected revenue and expending based on various levels of production.It shows how costs vary with different rates of end product or at different levels of sales volume. The flexible budget responds to changes in activity and may provide a pause tool for performance evaluation. It is driven by the expected cost behavior and cannot be produced forward the end of the period. A flexible budget adjusts the static budget for the actual level of output. It is more educate and useful than a static budget. A flexible budget is comp atomic number 18d to a companys static budget to find variances between the levels of expected and actual spending. The following travel are used to prepare a flexible budget 1. settle the budgeted variable cost per unit of output. Also Add comma here for limpi dity or to offset an afterthought from the watch of the sentence determine the budgeted sales price per unit of output, if the entity to which the budget applies generates revenue. 2. Determine the budgeted level of fixed costs. 3. Determine the actual volume of output achieved (e. g. , units produced for a factory, units sold for a retailer, tolerant days for a hospital). 4. Build the flexible budget based on the budgeted cost information from steps 1 and 2, and the actual volume of output from step 3 (Caplan,2009).Fixedcostsare expenses that do not change as the activity of a business changes within the relevant period. For example, aretailer must pay rent and utility bills regardless of sales. Variable and fixed costs make up one of the two components oftotal cost. Variable costs are expenses that do change as the activity of a business changes within the relevant period. The costs behavior determines whether it is fixed or variable. In a flexible budget, all costs are estimate d. Variable costs are known as standard variable costs since they are the best estimate for production costs determined by vigilance.Variable costs behave in a fixed manner when calculated on a per unit basis. Whether the trope of estimate units sold increase or decrease the standard cost will re chief(prenominal) the same. list variable costs in relation to the number of units sold will behave in a variable manner because total variable costs increases or decreases based on the number of units sold. The differences between static and flexible budget A static budget is a budget that remains unvaried regardless of fluctuation in the volume of sales, expenses, or other relevant factors.Static budgets are produced for a given financial period and are compared to actual results. Consideration is not given to revenue changes effecting variable costs. The main budget of a company is generally a static budget, while the budgets associated with departments are more roving (Byrne & Ma ther, 1997). Fluid budgets, also known as flexible budgets have the ability to adjust for changes in output levels or shifts in income. These budgets differ from static budgets in that they show projected expenses and revenue at a configuration of levels (Edmonds, 2007).Like all budgets, the flexible budget establishes line items for expenses and revenue for a given period with a value assigned to each line. This budgeting approach allows for quick changes to line items in the event of unforeseen complications. A rigid, static budget that is based on a single set of projections, and doesnt Contractions are unbefitting in academic writingwrite it out readily permit adjustments could be seen as inefficient (Byrne & Mather, 1997). How a flexible budget lends itself to a cost-volume-profit analysis Flexible budgets are a very useful management tool.These types of tools can provide information needed for planning and performance evaluation. Flexible budgets are based on actual volume o f activity Add comma here for clarity or to offset an afterthought from the rest of the sentence which assists organizations with achieving desirable profit levels. Managers may assess whether the companys cash position is adequate by assuming different levels of volume. They may judge if the number of employees, amounts of materials, and equipment and storage facilities are appropriate for a variety of different potential levels of volume, (Edmonds, 2007, p. 5).A flexible budget often compliments a cost volume profit (CVP) analysis. Both of these are tools that evaluate performance and benchmarking. It is helpful in understanding the relationships among cost, volume, and profit. Essentially CVPs are an extension of the breakeven point. Using the CVP, a manager can calculate the breakeven point, which is a great indicator of a minimum production level. CVP goes further and shows how much to produce to earn a certain amount of profit. Also, CVP identifies the apt(predicate) changes in profit whenever a key factor changes such as price, cost and quantity (Edmonds, 2007, p. ). demonstration Budgets are useful and necessary tools used to plan for future saving and spending. Like everything in business, in that location is more than one way to achieve this. Knowledge of the relationships and techniques described in this paper are valuable to a business. Once a business understands the process, it can increase flexibility. This allows a business to portray a more accurate financial picture and leads to more intelligent spending and a sustainable business plan.References Byrne, M. , & Mather, J. (1997). Managing the budget process. Club Management. Retrieved from https//ecampus. phoenix. edu Caplan, D. (2009). Flexible Budgeting. OSU. Retrieved from https//ecampus. phoenix. edu/secure/aapd/cwe/citation_generator/web_01_01. asp on 11/26/2010 Edmonds, T. P. (2007). Fundamental financial & managerial accounting concepts. Retrieved from https//ecampus. phoenix. edu E lmerraji, J. (2010). How budgeting works for companies. Investopedia. Retrieved from http//www. investopedia. com/articles/07/budgetingforcompanies. asp