Running head: ANALYTICAL SUMMARY 1

Analytical Summary

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June 26, 2020

ANALYTICAL SUMMARY 2

Analytical Summary

1.

As a manager, I would use capital budgeting to measure investments and projects, like

new equipment or plants. The procedure includes analysing cash inflows and outflows of a

project to determine whether the estimated return meets a decided benchmark. Capital

budgeting enables the investment or cost of a project to be compared with the cash flow

generated by the same venture. If the value of future cash flows surpasses the investment or

cost, then value creation possible exists, & the project must be further explored to exploit this

value (Baker & English, 2011).

2.

A static budget is designed based on one level of activity, assuming a level of

certainty and in times of uncertainty leading to dysfunctional management. Flexible

budgeting is a commonly used technique of planning and control that enables the consumer to

create expense estimates at various rates of an interest operation. The theory assumes that

some costs, called variable costs, differ in proportion to the degree of operation, while others

remain constant, called fixed costs. As flexible budgeting is calculated based on the most

practical activity calculation, it provides the managers with more information, control, and

flexibility to adjust to the adjustments for effective and efficient budgeting as well as

knowledge of the activity ranges and actions of each budgeted expense. This also serves as a

valuable method for success assessments since it is closely related to the activity levels

(Alexander, 2018).

3.

A flexible budget helps a planner to get a highly precise real-time analysis of the

firm's financial position. Because of this, the managers can control their production activities
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properly and ensure that the standard costs can be maintained to the maximum. The figures

are thus more reliable, and this means reliable coverage. For example, A model of a flexible

budget is planned where the price per unit is assumed to be dollar hundred. Eight hundred

units are sold in the last month, & the average price per unit sold is dollar102. This refers to

that there is a beneficial versatile variance in the budget concerning sales of dollar 1,600.

Furthermore, the model comprises an assumption that the cost per unit of products sold will

be dollar forty-five. In the month, it turns out the real cost per unit is $50. This means that

there is an unfavourable flexible budget variance related to $4,000 in the cost of goods sold

(calculated as $5 per unit x 800 units). It functions to an unfavourable difference of $2,400 in

sum.
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References

Alexander, J. (2018). Financial planning & analysis and performance management. John

Wiley & Sons.

Baker, H. K., & English, P. (2011). Capital budgeting valuation: Financial analysis for

today's investment projects. John Wiley & Sons.