What type of analysis does a flexible budget performance report help management perform?

Definition: A flexible budget performance report is a management report that compares the actual revenues and costs for a period with the budgeted revenues and costs based on the actual sales volume.

What is the use of flexible budget to analyze performance?

The flexible budget can be used for the determination of budgeted sales, costs, and profits at different activity levels. It helps the management to decide the level of output to be produced in order to generate profits for the business based on budgeted cost at different activity levels and budgeted sales.

What is flexible budget analysis?

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 is the purpose of budget performance reports?

The Profit & Loss by Budget Performance Report lines up your forecasted budget alongside your actual numbers over a specific financial period. This allows you to easily see what ‘budget items’ went as expected, which outperformed expectations, and which did not meet expectations.

What is a flexible budget and how can management use it?

In business, a flexible budget is one that you adjust based on changing costs and revenue. You build your budget at the beginning of the fiscal year, accounting for how much money your business has, needs and expects to make. By flexing its budget a company can anticipate and (more important) accommodate its needs.

What are flexible budgets and variance analysis?

Flexible budgeting considers both fixed and variable costs with variance analysis. Management may set flexible targets to cover fixed costs and then gradually build on profits later. Variable costs assigned to sales activity or in percentage terms provide greater flexibility in profit analysis.

Why might managers find a flexible budget analysis more informative than static budget analysis?

A flexible budget allows a business to see more variances than a static budget. Making a static budget involves the use of assumptions and predictions about sales, the market, economic conditions and other factors that impact a business before the budget period begins; these assumptions might not be correct.

What is the benefit of a flexible budget?

Flexible, rolling budgets empower entrepreneurs to cope with change. This nimble planning process lets you adjust spending throughout the year; benefits include less overspending, more opportunities and speedier responses to changing market and business conditions.

Why are flexible budgets more effective than fixed budgets?

The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace. Fixed versus variable expenses in a flexible and static budget.

How do you prepare a flexible budget performance report?

To prepare a flexible budget performance report, you identify key figures based on the flexible budget formula. If your company’s formula says, for example, that COGS should be 25 percent of sales and sales were $75,000 for the period, COGS should be $18,750.

What does a flexible budget performance report?

Definition: A flexible budget performance report is a management report that compares the actual revenues and costs for a period with the budgeted revenues and costs based on the actual sales volume.

What is flexible budget Mention the steps involved in preparing flexible budget?

Steps involved in flexible budgeting

1. Decide a range of activity for which the budget is to be prepared. 2. Determine the cost behavior pattern (Fixed, Variable and Semi-variable) for each element of costs that are included in the flexible budget.

What is flexed budget with example?

Example of a Flexible Budget

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. Once the budget period has been completed, ABC finds that sales were actually $9 million.

What is the flexed budget?

A flexible budget, or “flex” budget varies with changes in the amount of actual revenue earned. In its simplest form, the flex budget will use percentages of revenue for certain expenses, rather than the usual fixed numbers. This approach results in better comparability of budgeted and actual results.

Which of the following describes a flexed budget?

A flexible budget is a budget that adjusts to the activity or volume levels of a company. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels.

What are the characteristics of a flexible budget?

Main Features of Flexible Budget

• The 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.