Budget Free Essay Samples & Outline
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Sample Essay On Budget
A flexible budget determines the various expenses on variable costs depending upon variances in actual income. It adjusts changes in the level of activity and is compared to the master budget after an accounting period has elapsed and any variances are noted and appropriate corrective measures are taken. This budget is constructed by first identifying all fixed costs and separating them in the budget model, ascertaining how the variable costs will change as the activity levels changes and designing a budget model where all fixed costs are kept constant and the variable costs are stated as a percentage of those expected from the expected activity level.
Flexible budgets are useful planning tools for managers since they show all the expected variable and fixed costs depending on the expected level of activity. This enables the managers to detect and correct any uncertainties that may occur as the accounting period proceeds. A flexible also budget gives managers a preview of the expected expenses which helps them in their planning process. It also helps in evaluating the performance of managers since the expected level of activity is predetermined. The performance of managers can, therefore, be determined as the accounting period proceeds, and an evaluation can be done. It also enhances budgeting efficiency when it is used to update a budget whose figures have not yet been compiled. This ensures that the budget is always updated, and any missing information is readily available (Boyabatlı & Toktay, 2015)
A flexible type of a budget is sometimes difficult to devise and implement. The process of constructing flexible budget can be complicated, and its administration can be hectic. In most instances, the services of an expert are needed in order to construct it. This kind of a budget also requires close monitoring in order for it to be effective which is a time consuming activity. A delay in the completion of an accounting period can also affect the operation of this budget since it has to be compared to the master budget after the completion of the period.
In short, although the article clearly points out that a flexible budget can be hard to develop and implement, its usefulness is evident and it contributes a great deal in the controlling function of managers. It is also a useful tool in performance measurement and budgeting efficiency. Business organizations should therefore incorporate their usage in their operations.
Boyabatlı, O., Leng, T., & Toktay, L. B. (2015). The impact of budget constraints on flexible vs. dedicated technology choice. Management Science.