Flexible Budgets Acc543

Flexible Budgets Team ACC/543 Professor Deborah Fitzgerald doubting Thomas University of Phoenix 2010 Team B, You have done a coarse assembly line on the assignment. I have noted some minor issues to champion you on early assignments. Abstract The purpose of this paper is to give an overview of the work out process. It analyzes elastic figures, discusses the relationship between fixed and variable cost, explores the differences between nonmoving and bendable cyphers, and how budgets assist in the cost- pot- pelfability analysis. The Purpose of Flexible Budgets A budget is a tool utilise by line of credites to plan for upcoming taxs and expenses.Businesses record the difficulty of be after for the future. Circumstances inevitably arise that can flip the outlook of a companys financial consider overnight. natural businesses look to increase flexibility. To do this, businesses explore the relationship between fixed and variable cost, incorporate techniques to transfor m static budgets, and use pliant budgets to fulfil cost-volume-profit analysis. The relationship between fixed and variable costs used in a plastic budget A flexible budget is a statement of projected revenue and exp wind upiture based on variant levels of production.It shows how costs vary with diffe pursue rates of output or at different levels of sales volume. The flexible budget responds to changes in activity and whitethorn provide a better tool for mathematical operation evaluation. It is driven by the expected cost behavior and cannot be prep ard before the end of the period. A flexible budget adjusts the static budget for the authentic level of output. It is more sophisticated and useful than a static budget. A flexible budget is comp atomic number 18d to a companys static budget to reign variances between the levels of expected and actual spending. The following steps are used to prepare a flexible budget 1. sterilise the budgeted variable cost per unit of measure ment of output. Also Add comma here for clarity or to off condition an reconsideration from the rest 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 developd for a factory, units sold for a retailer, patient 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 applicable period. For example, aretailermust 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 v ariable. In a flexible budget, all costs are estimated. Variable costs are known as standard variable costs since they are the crush estimate for production costs determined by management.Variable costs run in a fixed manner when calculated on a per unit basis. Whether the number of estimate units sold increase or falloff the standard cost will remain the same. Total 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 unaltered 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 dep artments are more fluid (Byrne & Mather, 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 mannequin 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(prenominal) 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 inappropriate in academic writing pen 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(prenominal) useful management tool.These types of tools can provide information needed for planning and performance evaluation. Flexible budgets are based on actual volume of activity Add comma here for clarity or to offset an reconsideration 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 auxiliary 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 amoun t of profit. Also, CVP identifies the likely changes in profit whenever a key factor changes such as price, cost and total (Edmonds, 2007, p. ). Conclusion Budgets are useful and necessary tools used to plan for future saving and spending. Like everything in business, there is more than one behavior to achieve this. Knowledge of the relationships and techniques described in this paper are priceless 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. Retr ieved from https//ecampus. phoenix. edu Elmerraji, J. (2010). How budgeting works for companies. Investopedia. Retrieved from http//www. investopedia. com/articles/07/budgetingforcompanies. asp