Flexible Budgets

In: Business and Management

Submitted By risymorales
Words 271
Pages 2
Flexible Budgets ACC/240 Risy Morales

A flexible budget is a budget that allows varies degrees of activity. Flexible Budgets are able to detect the different type of outcomes to each individual situation, or in other words reports based out of statistics. Its calculations will show an estimated income, based on what expenditures are allowed for units sold and produced.

The steps to developing a flexible budget are: 1. Identify the activity index and the relevant range of activity 2. Identify the variable costs, and determine the budgeted variable cost per unit activity for each cost 3. Indentify the fixed costs, and determine the budgeted amount for each cost 4. Prepare the budget for selected increments of activity within the relevant range.

Remember: Both Cost and/or Revenue were both variables in the original budget, that amount will need to be recalculated when preparing a flexible budget. If the cost was identified as a fixed cost, then no changes need to be made in the budgeted amount.

The information found on a flexible budget report is: 1. Production data for a selected activity index, such as direct labor hours, 2. Cost data for variable and fixed costs.

Flexible budget reports provide a basis for evaluating a manager’s performance in two areas: 1. Production control 2. and Cost control.

It is a great way to evaluate mangers effectiveness, given that the information and data collected is correct, and that the manager’s responsibilities and goals are designated accordingly.

Kimmel, P., Weygandt, J., & Kieso, D. (2003). Essentials of accounting: Tools for business decision making (2nd ed.). Hoboken, NJ: Wiley.
Pages 343-349, Flexible…...

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