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 do flexible budgets reflect?
A master budget and related budgets are prepared as static budgets for the estimated level of activity. A flexible budget adjusts the budgets for various levels of activity and allows for the actual results to be evaluated at the actual volume of activity.
What is the flexible budget amount?
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 disadvantages of flexible budget?
Disadvantages of Flexible Budgeting
- Confusing. Budgets are simple because they provide one figure within which someone must remain.
- Enables Cheating. The rules of a traditional budget are straightforward: don’t spend more than the limit.
- Less Discipline.
What is the difference between static and flexible budget?
A static budget forecasts revenue and expenses over a specific period but remains unchanged even with changes in business activity. Unlike a static budget, a flexible budget changes or fluctuates with changes in sales and production volumes.
What does it mean to have a flexible budget?
A flexible budget is one based on different volumes of sales. A flexible budget flexes the static budget for each anticipated level of production. This flexibility allows management to estimate what the budgeted numbers would look like at various levels of sales.
Which is flexible budget evaluates the results of operations?
A flexible budget adjusts the budgets for various levels of activity and allows for the actual results to be evaluated at the actual volume of activity. (Figure) Which budget evaluates the results of operations at the actual level of activity?
How to prepare a flexible budget for 120, 000 units?
(Figure) Prepare a flexible budgeted income for 120,000 units using the following information from a static budget for 100,000 units: (Figure) Before the year began, the following static budget was developed for the estimated sales of 100,000.
How are variable costs adjusted in a flexible budget?
The variable manufacturing overhead is adjusted in the static budget. There is no difference between the budgets. The variable costs are adjusted in a flexible budget. (Figure) A company has prepared the operating budget and the cash budget. It is now preparing the budgeted balance sheet.
