- June 21, 2020
Budgetary Control and Responsibility Accounting
BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTING
BudgetaryControl and Responsibility Accounting
1.What is a flexible budget? What types of organizations may useflexible budgets? Why are flexible budgets useful?
Knowingvarious operation activities of a company is very important. Aflexible budget is a budget type utilized in projecting variousactivity levels in a company. A flexible budget has various formulas,which help in the adjustments of different expenses that have theirbasis on the actual revenue changes within a company. Thus a flexiblebudget can easily be defined as a budget that is close and fairlyaligned with real and definite results. The approach does vary from aparticular static budget to another. A flexible budget uses revenuepercentages for different expenses instead of using a fixed number.This will possibly allow for numerous changes to the costs that donot really change according to the variations of small revenues.Therefore, a more complicated format will be very useful inincorporating various changes or alterations to other added expenseswhen there is a change in larger revenue. This will consequentlyaccount for the step costs. Through the incorporation of theseparticular changes within the budget, that particular company willhave the ability to compare the budgeted performance with the actualone at every activity level.
Differentcompanies can decide to use a flexible budget to make sure that thebusiness is capable of faster responding to any issue thus thecompany is always kept profitable. To make sure that the budget isoperating properly, the management will then have to look at thebudget made for a certain number of customers. During the preparationof a flexible budget, the management will have to use the sameassumptions and selling price they would have used during thepreparation of a static budget.
Anybig organization or company can use a flexible budget. Examples ofsuch companies include manufacturing companies, processingcompanies, steel companies, hotels, weekly reading companies, and anyother company interested in adjusting the changes in its activities.Flexible budgets are very useful in that they provide the wholebusiness or company with very crucial and important information thatcan help in obtaining continued profits to the company through makingsure the company has got first-hand information or insight in caseswhere there are costs variations. Flexible budgeting is a veryimportant business management tool since a company can utilize it asa roadmap to have a successful and good budget plan for thesubsequent year. It can also be utilized to help in the comparison ofthe actual time results through the identification of areas that arenot in line with the whole budget. 2. The flex in theflexible budget relates solely to variable costs. Do you agree?Explain.
Yes.Flex in the flexible budget solely relates to variable costs becauseflexible budgets are only flexible in relation to the variable costsand not to the fixed costs. Fixed costs do not really change withchanges in the activity levels and thus there isn’t any flex in theportion of a fixed cost of a flexible budget. 3. We wanta flexible budget because costs are difficult to predict. We need theflexibility to change budgeted costs as input prices change. Does aflexible budget serve this purpose? Explain.
Aflexible budget does not really serve this purpose. A flexible budgetflexes or adjusts different changes in an activity’s volume. Aflexible budget is more complicated but useful as compared to astatic one. A static budget, on the other hand, will always remain ata particular amount irrespective of any change in the activity`svolume. The flexible budget does not really serve the purpose sinceduring the preparation of any budget the input prices fluctuationsare already accommodated or catered for. A flexible budget will onlybe utilized as a tool for the evaluation of the performance. Theybasically deal with the output differences and they adjust the staticbudget mainly for the real output level. The main purpose of aflexible budget is to help people who budget to answer some questionslike: Suppose I hadn`t known the volume of the output at thebeginning, how then would the budget have looked like?4.An activity-based flexible budget has a `flex` for every activity. Doyou agree? Explain.
Idon’t really agree that a flexible budget activity-based has a flexfor each and every activity. Flexible budgets have differentvariations with the outputs, inputs, activities, costs, and even theoperations. Tracking all the operations and activities wouldtherefore not be reasonable. The statement can only be true if therewas a very sophisticated and a complicated tracking system ofaccounting, which is very rare to come by. This, however, does notmean that the management involved in preparing the flexible budgetshould ignore the differences existing in the levels of sales. Theseparticular differences and the activities of the management shouldalso be evaluated in a proper way.
Kimmel,P. D., Weygandt, J. J., & Kieso, D. E. (2010). Accounting:Tools for business decision making (3rded.). Hoboken, NJ: John Wiley & Sons