What Are the Differences Between a Fixed and Flexible Budget?

Equal to flexible budget. The flexible budget method, also known as the variable budget method and the sliding budget method, is a method of preparing budgets based on different business levels in the future on the basis of the variable cost method. It is the symmetry of fixed budgets. It refers to an expense budget that is prepared based on a variety of business volume levels that may occur during the budget period and correspondingly determine the corresponding amount of costs and can adapt to various business volume levels. In order to reflect the level of expenses (or profits) that should be spent (or obtained) in the case of each business volume.

Flexible budget

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Flexible budget is equal to flexible budget. The flexible budget method, also known as the variable budget method and the sliding budget method, is a method of preparing budgets based on different business levels in the future on the basis of the variable cost method. It is the symmetry of fixed budgets. It refers to an expense budget that is prepared based on a variety of business volume levels that may occur during the budget period and correspondingly determine the corresponding amount of costs and can adapt to various business volume levels. In order to reflect the level of expenses (or profits) that should be spent (or obtained) in the case of each business volume. It is precisely because this kind of budget can reflect the expenditure control number of each business volume level with the change of business volume, and has a certain flexibility, so it is called "flexible budget".

When the flexible budget method is used to compile the cost budget, the key is to divide all costs into two major parts: variable cost and fixed cost. The variable cost is mainly controlled based on the unit business volume, and the fixed cost is controlled based on the total amount. The flexible budget method of cost is as follows: Flexible budget of cost = fixed cost budget + (variable cost budget per unit × estimated business volume)

Flexible Budget-Steps to prepare a flexible budget:

The steps for preparing a flexible budget are as follows:

Select and determine the measurement unit consumption, labor hours, machine hours, etc. of various business activities.

Forecast and determine the business volume of various operating activities that may be achieved. In determining the business volume of economic activities, it is necessary to coordinate with various business departments. Generally, it can be determined in the range of 70% -120% of the level of normal business activities. The upper and lower limits are then divided into several levels, so that the flexible budget compiled is more practical.

According to the dependency relationship between cost behavior and business volume, the production cost of the enterprise is divided into two categories: variable and fixed, and the relationship between various costs and business volume is determined item by item.

Calculate the forecast data at various business volume levels and express it in a certain way to form a flexible budget for a certain item.

The main characteristics of flexible budget:

Able to provide a series of production and operation business budget data, it is prepared for a series of business volume levels, so when the actual business volume of a budget item reaches any level (must be within the selected business volume ). Each has its own set of control standards.

Since the budget is separately listed according to the nature of each cost, the predicted cost at any actual business volume level can be easily calculated, thereby facilitating the management staff to strictly control the expenses in advance, and also has It is beneficial to analyze the reasons for various cost savings or overruns afterwards and resolve the problems in a timely manner.

Advantages and applicability of flexible budgets

The advantages of flexible budgets are: on the one hand, it can adapt to changes in different operating activities, expand the scope of the budget, better play the role of budget control, and avoid frequent changes to the budget when actual conditions change; another The aspect can enable the budget to evaluate and evaluate the actual implementation on a more objective and comparable basis.

This method is suitable for various project expenditures that change with business volume, such as the procurement of goods for schools. Because the enrollment scale of students varies greatly, the number of enrolled students and the number of students in the school can be calculated according to the budget year Number of desks, stools, beds, school building maintenance or other procurement items.