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DATE
Asignment
budges
Fieiblebodgets are essentiall
od Can be acdjused clepeodingubpon revenue and s
hraughout the ftscal year, accountng so
changes
expected unpredictability.
opanies first actobgt
or at eeast costs
for the fixed costs they expect,
that they clon' eepect to change ás the
year prtgrexer
Ihey them allow fo Slucuatinqi variable costs,teuiauica
Costs perKodically +o make rea-4ime acjustments.
ifs neerle
The allounS for Cornpaniesto accommodate
hsaaias factors change throughout the yea, Soch as hiah
increase in demand for goods or services ohaSea Sonal
hike in labor costs Fiexible budarts demand a bit
iahu of imaginaton and règuir'e time spent accounting for
d hypotheticcalsbut heyallou businesses te adapt
Rbblto changina external ackorspaacat fo
bsdt iaA flexble budet is a finanetialplanning tool
ehat adjuststo changes in a company's ackity
leuels, sales volumes, or pmfit marqinshs is
dfferent from a satc budget ohtchiremains
bnchanged regardlless of real-world changes
fIexible budgets are more up to dateoand octorae
Ahan saKc budgets because they account for
bnpredtchabili. iey can help busínasses Make
otin beHer decisions igbaut operations,identfy areas far
improvemeat, and Plan foruture qrouoth
Hous hey coork Ztta haal
Fexible. apdqes are crented by ident:fuiog coshs
and expenses that vary uoith actvity leuels, ano
then calculating the expected cost for ench leuel.
PAOE NO
DATE
for 25 1- of it
example, a company might budget amoont.
revenuefor Salary instead of a focedi
How Alexible. budach arc.inplernnteclin pa
lexibie boclaets are Rmplemented by Rst
LeStablishing a base budget that öiotlines expected
FerenueS and expenses fordifferènt leuels of achvity
Hs atuaachuity levels fuChuate the flexible
Dudget acjusts theseiqures based on predeermined
Variable costs and ixe costs his allouos fora more
acCurate Comparisoniof budaehed versins actUaliper formanct.
fo insante, i prodution, ioreases, the budget flexible
ill refleat higher Narablei Coshs proui dinq insights
ino cost manag ement.and operaonal effiiency Acdeliion
ally4organiz odions reqularly revieuw and opdae these
budqeks to ensure they align oith changing cirumsances,
enotilingmore rospopsiuc Sinancial planninuandbeHer
decision makingsbu stindo
t k Acankáges of flexible Bucgeks ld
levels, pouicling
:
Adapabilty i Tey
a
ndljust to thanges in
more accorate reflectionotactual
qcuhy
performance compartd to salia budgets.
2PerSormance Evaluation Helpsin Qssessiag managerial
per formance by comparing actual coshs uoith Flexibie
bodget.estimaes a he achual aciutty level.
Resouorce Alletakon Cnables beltor de
regarding resource allocatfor as
vellordetisiontnak,
h
reftecks
cperalfonal needs.
e VarianceAnalyss :facililates delailed Variante
analysis by disiioquishing beween volume oo4
spending voriances,ald aiding in
den}:fyiau b
for improvemenl.
sforecasinq Aauracy sTmpro eS L.forecacling attuso
bu allouofag adjustmenls basedi on changing
tisdConclikons.
Drsacvantagest
A Complexihyi Crealing and mašal aioiog fiexible
bucda ets Can be more complex than sac
budaes
requiring more delailed daa and analsts.
A.Timeonsuming i he processiof reqularly updahng
haAhe budget based on achuity levels can be time
Consuming for managem ent
2 Reguires Accurate
Data: Relies heavilu on
acturake
data regarding voariable
costs_and achuty levels.,
ohtch ean be
challenqing to obtain.
Oueremphosis on Short-Term
Perfocmancei
May lead to a fo(US_on
outcomes ralher than short-term Sinancial
long-erm slrateg'c goak
DAGE
Potenlial: isioerpretalion iithout proper
Onderstandiag varandes inlexibie budeks can be
misinlerpreled, leacling
Jeading o poor decision-makiog.
How do you prepare a Flexible Budget?
T6 prepare a budaet, start by delermining
flexible.
the releNant achivity levels foz the period, suh as
Sales yolbme oa poduction unis. nlext,dentify fhe
xec and yauriable costs assocfated Pth each level
of ackiuity Azed iostsremain constantregárdless
o output, while Variable Costs fluctuate with actiuity
lerels. Once you have this foformatfon, crecte a buclget
frameuo0xk that outines the excpected revenues and
Costs at different levels of actuty This typically
inuoluing calcolating the totad icosts bg applying
Lal variables Cost rates do the projedted achiuik,levels
and adalig thecfeed osts Finodly org anize. the
budaet into a
foxmat that allows for easy comparison
afactual resulks agaigst i the flezcible budget foY
enthachuttylevel, Saritatng effecivel variance
onahysis and perfoxmantea Pualuaion zns
DATE
Eg A 90' Capaciy, ABc Ltd procuce s 10,8o0 units
and incorred Ahe expensesas uncler n
Porticulnrs
Direc Malerial
oote Cost per unit (a)
Dicect Laboux
Othê
Selltag
Proclucing
Variable
Rcloninistraive
Expnses
Overheads
Orerheads
Ouerheocls E O0213
6(407
3 (75
(207
' variable)
Varable
variable)
)
Selliag price per uni) Z60
Alercible Buclaet for 70/, 80 : andl IDO . blsalion
f the Capaneiky
Solution
Elexble Cos Buclge t
Particular
Pu Pu
Sales 60 6,48,000 60 5,04e,00o 60 56,DDo 60 20,n
OVairable (ast
-Moteial M15,600
- Lobour S4,060 s |42,000
S d4300o S 60000
-Gther V Exp 4°S0 H8,600 So31oo S0l43,200 2 So S4 000
25,9202420,16o 24 23 o 2-4 23800
2-2S \8,9002-25 2L&oo 22S P000
Seling bH 24,300 2-2s
Proxludion OH o6 S,OoO6sNo06 200
82,160 2S1000
|413,160 3,21300 3.67,200
DATE
txed ost
Adm-oH
3:6 |38,38o L63oLe6 28,886 6 33,380
Selting OH o158lbo0:468160o46 B.100o-96 8,(00_
Produdton OH 24 25a20309 bsa0-08
259203-0 25,9203-0 2s,10
|72900 72,46 72,706
Proft |3600
B,40,200 u0d21300
70
96y O,200
8,400 4,600 l2,006
V:C
2Admin OHue
3 Selling bH E 3X 7S'(. 2-25
4Prodytion oH :2x20/» 6:6
F:C.
5 Almin QH 6 x 60-- 36 X lo,800 e 38,830
6Selling OH 3X 25Y20-75k 10.806 = 8,100i
1 Proclucki0n OH 3x80/* - 2-4 X lO,800= 25,920
38,800 (a)38800 -05l0) 33 8o032
9.600 o syto 12,000
Selliag
S100OS 2) 8l000:8413)
4600
&oo6R
8400
Productibn
25,92O2 aus) 2S920 2h0 ll6)2592026
9,606 12000
