Question: What Are The Characteristics Of Flexible Budget?

What best describes a flexible budget?

A flexible budget is based on the level of output at the beginning of the period; a static budget is based on the actual output level in the budget period..

What is the difference between fixed and flexible budget?

Fixed budget is inflexible and does not change with the actual volume of output achieved. Flexible budget can be suitably recasted quickly according to level of activity attained. Fixed budget assumes that conditions would remain static. Flexible budget is design to change according to changed conditions.

What causes the difference between static and flexible budget amounts?

A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.

What are the three types of flexible budget variances?

Favorable variances arise when actual results exceed budgeted. Unfavorable variances arise when actual results fall below budgeted. Favorable profit variances arise when actual profits exceed budgeted profits. Unfavorable profit variance occurs when actual profit falls below budgeted profit.

What are the two main types of budget?

Based on conditions prevailing, a budget can be classified into 2 types;Basic Budget, and.Current Budget.

What does a flexible budget look like?

This type of budget is most often based on changes in a company’s actual revenue and uses percentages of revenue rather than static numbers. For example, a flexible budget may allot 25% of a company’s revenue to salary as opposed to allotting $100,000 to salary in a given year.

What do you understand by Zero base budgeting?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a “zero base,” and every function within an organization is analyzed for its needs and costs.

What is the classification of budget?

According to time, budgets may be classified as: (i) Long-term Budget, (ii) Short-term Budget, and. (iii) Current Budgets.

What is a lump sum budget?

Lump Sum Budgets The phrase “lump sum budget” refers to very general, non-specific approach to budgeting which leaves a great deal of discretion to the owner of the grant. … Though the lump sum budget might have categories of spending, those might be very generally defined.

What are the benefits of a 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.

What is a flexible cost?

A flexible expense is a discretionary purchase that can be altered or eliminated altogether without a significant downside. Economists often use the term consumer discretionary spending to describe flexible expenses.

What is flexible budget example?

A flexible budget adjusts the master budget for your actual sales or production volume. For example, your master budget may have assumed that you’d produce 5,000 units; however, you actually produce 5,100 units.

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 3 types of budgets?

Depending on the feasibility of these estimates, Budgets are of three types — balanced budget, surplus budget and deficit budget.

What is the most common budgeting mistake?

Here are six of the most common budgeting mistakes I see people make without even realizing it.Keeping the same budget every month. Mistake: Consistency is great when it comes to budgeting. … Giving up too soon. … Not writing it down. … Making your budget too stringent. … Forgoing wiggle room. … Not having an emergency fund.

What are three types of flexible expenses?

There are three major types of expenses we all pay: fixed, variable, and periodic.