The flex in the flexible budget relates solely to variable costs

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The flex in the flexible budget relates solely to variable costs

Most businesses use budgets with fixed estimates for revenues and expenses, by category or sub-category. However, some businesses use flexible budgets, which vary the expense level with the dollar amount of sales. A fixed cost flexible budget variance is the variance between the actual and budgeted amounts for a fixed cost in a flexible budget.

Flexible Budget Defined A flexible budget varies to adjust for fluctuations or shifts in the volume of sales-related activity. A flexible budget reflects multiple changes for various levels. Instead of static forecasts, a flexible budget -- also referred to as a flex budget or variable budget-- shows costs as a percentage of sales.

The flex in the flexible budget relates solely to variable costs

Costs go up or down accordingly as the company records actual sales numbers. Few costs qualify as strictly variable or fixed. Most costs exhibit characteristics of both fixed and variable characteristics.

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Therefore, some firms that use flexible budgeting only forecast costs with a strong variable component as a percentage and hold the other, less variable costs as fixed. Variable To accurately classify costs as fixed or variable and calculate accordingly, managers must assess the behavior of a cost in relation to revenue within a predetermined range.

In a flexible budget, those expenses that do not change within a sales range appear primarily as fixed costs. One example is maintenance and cleaning. The costs that change significantly based on sales appear primarily as variable costs and show as percentages of sales.

In addition, companies typically break generally variable costs into fixed and variable components. Fixed Cost Component Because fixed costs do not vary during the period in question, fixed costs behave the same in a flexible budget as they do in a static, or fixed, budget.

This includes the traditional fixed costs of depreciation, occupancy costs, insurance and administrative personnel. In a flexible budget, managers must assess and decide which costs qualify as fixed or variable, how much is fixed and how much is variable -- for each category or subcategory.

Therefore, flexible budgets contain more detailed information regarding specific fixed costs and their associated variances between budget and actual.

Variances Fixed cost budget variances arise when a company pays more or less than planned for overhead items. A favorable variance occurs when the actual fixed cost or fixed cost component a company incurs is less than its budgeted fixed cost.

An unfavorable variance occurs when the actual fixed costs or component exceed the budgeted fixed cost or component. Analyzing fixed cost variances helps companies determine how well they allocate fixed costs to activities and pinpoints where they may need to make adjustments.

References 2 McGraw Hill:NEBRASKA CROP PROGRESS AND HARVEST REPORT For the week ending November 11, , there were days suitable for fieldwork, according to . schwenkreis.com is the place to go to get the answers you need and to ask the questions you want.

Therefore flexible budgets are flexible with respect to both variable and fixed costs. b. Yes. Flexible budgets are flexible only with respect to variable costs. Although fixed costs change with the level of activity, only variable costs are evaluated in a flexible budget.

Envisioning the United Nations in the Twenty-first Century Proceedings of the Inaugural Symposium on the United Nations System in the Twenty-first Century. “The flex in the flexible budget relates solely to variable costs.” Do you agree?

Explain. “We want a flexible budget because costs are difficult to predict. ELSEVIER Journal of Operations Management 14 () JOURNAL OF OPERATIONS MANAGEMENT Conceptual note The operations management role in hospital strategic planning Timothy W.

Butler a,*, G. Keong Leong b, Linda N. Everett c a Wayne State University, School of Business Administration, Detroit, M

United Nations in Twenty-First Century