Flexible Budget
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Flexible Budget
ACC/220
November 4, 2011
Flexible Budget
A flexible budget is exactly what it infers, flexible. A static budget is based solely on management’s predictions of fixed and variable expenses on one level of activity (Kimmel, Weygandt, & Kieso, 2003, p. 341). A flexible budget projects and incorporates budgets for several levels of activity (Kimmel, Weygandt, & Kieso, 2003, p. 343). For example, a flexible budget for a manufacturing department may choose activity levels of units projected to be produced (Kimmel, Weygandt, & Kieso, 2003, p. 343). A car rental agency may choose activity levels based on the amount of cars rented and hotels may use room occupancy for their levels (Kimmel, Weygandt, & Kieso, 2003, p. 343). The type of activity will be applicable to the business preparing the flexible budget. The flexible budget provides for an increase or decreases in projections and can tell companies whether or not they are meeting their budget guidelines and performance measures. Each level of activity will change the variable budget costs as the fixed costs will remain the same no matter what level of activity is maintained (Kimmel, Weygandt, & Kieso, 2003, p. 345).
When developing and designing a flexible budget, the master budget is used for relevant information and guidance (Kimmel, Weygandt, & Kieso, 2003, p. 345). The four steps in the development process of a flexible budget. (1) Identify the activity index and the relevant range of activity, (2) Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost, (3) Identify the fixed costs, and determine the budgeted amount for each cost, and (4) Prepare the budget for selected increments of activity within the relevant range (Kimmel, Weygandt, & Kieso, 2003, p. 346). It is very important that managers choose the correct activity index by indicating the index that most effects costs of the activity chosen (Kimmel, Weygandt, & Kieso, 2003, p. 346)....
ACC/220
November 4, 2011
Flexible Budget
A flexible budget is exactly what it infers, flexible. A static budget is based solely on management’s predictions of fixed and variable expenses on one level of activity (Kimmel, Weygandt, & Kieso, 2003, p. 341). A flexible budget projects and incorporates budgets for several levels of activity (Kimmel, Weygandt, & Kieso, 2003, p. 343). For example, a flexible budget for a manufacturing department may choose activity levels of units projected to be produced (Kimmel, Weygandt, & Kieso, 2003, p. 343). A car rental agency may choose activity levels based on the amount of cars rented and hotels may use room occupancy for their levels (Kimmel, Weygandt, & Kieso, 2003, p. 343). The type of activity will be applicable to the business preparing the flexible budget. The flexible budget provides for an increase or decreases in projections and can tell companies whether or not they are meeting their budget guidelines and performance measures. Each level of activity will change the variable budget costs as the fixed costs will remain the same no matter what level of activity is maintained (Kimmel, Weygandt, & Kieso, 2003, p. 345).
When developing and designing a flexible budget, the master budget is used for relevant information and guidance (Kimmel, Weygandt, & Kieso, 2003, p. 345). The four steps in the development process of a flexible budget. (1) Identify the activity index and the relevant range of activity, (2) Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost, (3) Identify the fixed costs, and determine the budgeted amount for each cost, and (4) Prepare the budget for selected increments of activity within the relevant range (Kimmel, Weygandt, & Kieso, 2003, p. 346). It is very important that managers choose the correct activity index by indicating the index that most effects costs of the activity chosen (Kimmel, Weygandt, & Kieso, 2003, p. 346)....