Flexible Budgets Essay

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Flexible Budgets Lisa Magliocca and Tammy Sims ACC 543 April 21, 2014 Linda Miller Flexible Budgets Budgets are a necessary part of any organization. While they are often confining, budgets provide important monetary allotments for various departments and categories. They assist in keeping an organization solvent. An organization can create several budgets for different needs. Two such budgets are the flexible budget and the static, or master, budget. Both budgets can be an important part of a manufacturing company’s budgeting process. Both can utilize fixed costs and variable costs for different elements, but the flexible budget contains elements used for cost volume profit analysis. Flexible budgets and static budgets A flexible budget is a budget that is created to adjust to any changes that a company may have in their activity (Edmonds, Edmonds, & Olds, 2007). A flexible budget can be used for a company’s whole budget. A static budget is a budget that is created by a company and does not change as activity changes (Edmonds, Edmonds, & Olds, 2007). Static budgets are good to keep on track of costs of production and to be used as a tool to those who purchase for a company to make good choices. A flexible budget is good to be described as end of period of actual accounting expenses. A good way to look at a static budget is to think of it as a projected budget. Static and flexible budgets are separate but are interconnected systems of a company’s accounting regimen. The flexible budget is prepared beginning of the year whereas the static budget is prepared throughout the year. The static budget does not ascertain costs correctly where the flexible budget can in different levels of activities. Static budgets has limitations to applications and not a good tool for cost control but the flexible budget is an effective tool for cost

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