Quick Answer: What Is Needed To Prepare A Flexible Budget?

What is the difference between fixed and flexible budget?

Fixed budget is inflexible and does not change with the actual volume of output achieved.

Fixed budget assumes that conditions would remain static.

Flexible budget is design to change according to changed conditions.

Costs are not classified according to their variability i.e.

fixed, variable and semi variable..

What is flexible budget example?

Example of a Flexible Budget ABC Company has a budget of $10 million in revenues and a $4 million cost of goods sold. Of the $4 million in budgeted cost of goods sold, $1 million is fixed, and $3 million varies directly with revenue. Thus, the variable portion of the cost of goods sold is 30% of revenues.

What is meant by zero based budgeting?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. … Budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.

What is the purpose of preparing flexible budget?

A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. The budget is then compared to actual expenses for control purposes.

What are some examples of flexible expenses?

Flexible expense examples include groceries, dining out, entertainment, and even utilities. Learn how you can master your personal finances by cutting back on these expenses and putting more money where it matters.

How do you prepare a flexible budget for different levels of activity?

How to create a flexible budgetIdentify which costs are variable and which costs are fixed. Fixed costs typically include expenses such as rent and monthly marketing costs. … Divide the budget. … Create your budget with set fixed costs. … Update the budget. … Input and compare.

What is considered a flexible expense?

In personal budgeting, a flexible expense is one that can be cut back or eliminated. Even inflexible expenses can contain flexible components. It’s the filet mignon in the grocery budget.

What is a fixed budget?

A budget that does not take into account any circumstances resulting in the actual levels of activity achieved being different from those on which the original budget was based. Consequently, in a fixed budget the budget cost allowances for each cost item are not changed for the variable items. Compare flexible budget.

What are the advantages of flexible budget?

The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can’t account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month.

How is a flexible budget prepared?

Preparation of a Flexible Budget. The flexible budget uses the same selling price and cost assumptions as the original budget. Variable and fixed costs do not change categories. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units.

What are the features of flexible budget?

Main Features of Flexible BudgetThe flexible budget covers a range of activities,A flexible budget is easy to change according to variations of production and sales levels.Flexible budget facilitates performance measurement and evaluation.It takes into account the changes in the volume of activity.More items…

What are the 4 types of expenses?

Terms in this set (4)Variable expenses. Expenses that vary from month to month (electriticy, gas, groceries, clothing).Fixed expenses. Expenses that remain the same from month to month(rent, cable bill, car payment)Intermittent expenses. … Discretionary (non-essential) expenses.

Is Rent a flexible expense?

In their most basic sense, fixed expenses do not change over time and flexible expenses do. In most individuals’ budgets, monthly mortgage or rent payments are fixed. … Flexible expenses may change each month or only occur during certain times of the year.