Flexible budgeting, Managerial Accounting

Assignment Help:

FLEXIBLE BUDGETING
Flexible budget may be used in one of two ways: Planning and Control.

At the planning stage when budgets are set, to reduce the effect of uncertainty. For example, suppose that a company expect to sell 10,000 units of output during the next year. A master budget (the fixed budget) would be prepared on the basis of this expected volume. Though, when the company thinks that output and sales may be as low as 8,000 units or as high as 12,000 units, it might prepare emergency flexible budgets, at volumes of say, 8,000, 9,000, 11,000, 12,000 units. The advantages of planning with flexible budgets include:

1) Finding out well in advance the costs of layoff pay, idle time and so on if output falls short of budget;

2) Deciding whether it would be possible to find alternative uses for spare capacity if output falls short of budget (for example, whether employees could be asked to overhaul their own machines instead of paying for an outside contractor);

3) Estimating the costs of overtime, sub-contracting work on extra machine hire if sales volume exceeds the fixed budget estimate, and finding out if there is a limiting factor which would prevent high volumes of output and sales being achieved.

4) It has been suggested, however, that since many cost items in modern industry are fixed costs the value of flexible budget in planning is dwindling.

For illustration:

In many manufacturing industries, plant cost (depreciation, rent and so on) is a very large proportion of net costs, and these tend to be fixed costs;

Wages costs also tend to be fixed, because employees are generally guaranteed a basic wage for a working week of an agreed number of hours.

With the growth of service industries, fixed salaries and overheads will account for most of the costs of a business, and direct materials will be relatively small portion of total costs.

Flexible budgets are also used retrospectively at the end of each month (control period) or year, to compare actual results achieved with the result that would have been expected if the actual circumstances had been known in advance. Flexible budgets are an essential factor in budgetary control and variance analysis.


Related Discussions:- Flexible budgeting

Definition of cost reduction, Definition of Cost reduction Cost reducti...

Definition of Cost reduction Cost reduction is planned positive approach to reducing expenditure. Cost reduction exercises are planned campaigns to cut expenditure. It is a con

Just-in time inventory management-jit production , Just-in Time (JIT) Inven...

Just-in Time (JIT) Inventory management JIT is a system whose purpose is to generate or to purchase products or components as they are required by customers or for use rather

Illustrate what the traffic can bear pricing, What the traffic can bear pri...

What the traffic can bear pricing Pricing based on what the traffic can bear is not a sophisticated method. It is used by retail traders as well as by some manufacturing firms.

Cost classifications, explain briefly variable cost, fixed cost and semi- v...

explain briefly variable cost, fixed cost and semi- variable in the production cost of a productor service, giving example for each

Hold-up problem or another problem, According to the Philadelphia Inquirer,...

According to the Philadelphia Inquirer, in 2004 the city of Philadelphia planned to spend $14 million to convert the Convention Center into an appropriate venue for the Republican

TOTAL PRODUCTIVE MAINTENANCE, Identify the ways in which Total Productive M...

Identify the ways in which Total Productive Maintenance could be applied as part of a manufacturing organisation''s quality programme

What are the elements of cost, Elements of cost: 1. Material: the sub...

Elements of cost: 1. Material: the substance from which the product is made is known as material it may be in a raw or a manufactured state. It can be direct as well as indir

Consortium lending, Consortium Lending: As the financial needs of a singl...

Consortium Lending: As the financial needs of a single unit are more than a single bank can cater to, then more than one bank comes together to finance the unit jointly spreading

Explain management accounting, Explain Management accounting Meaning &...

Explain Management accounting Meaning & definition: Management accounting is comprises of two words, Management and accounting. It is the study of managerial aspect of the ac

Moral Law vs. Tax Law, 1. Do you think that the tax minimization scheme ...

1. Do you think that the tax minimization scheme described to Debbie Kishimoto is in harmony with the ethical behavior that should be displayed by top corpo- rate executives? Wh

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd