StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Compare and contrast the fixed and flexible budgets - Assignment Example

Cite this document
Summary
Budgeting is a crucial process of every organisation because it is what keeps all the functions of an enterprise going. Budgets forecast financial needs and expected cash…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.7% of users find it useful
Compare and contrast the fixed and flexible budgets
Read Text Preview

Extract of sample "Compare and contrast the fixed and flexible budgets"

Download file to see previous pages

However, in unstable business scenario, flexible budget is always more relevant as it helps the business to effectively manage possible changes in the business environment, which would be hazardous if not well managed. Therefore, budget managers are usually faced with the task of adopting the right type of budget for their organisations depending on business situation. This paper explores fixed and flexible budgets, their differences, preparation procedures and functions. A fixed budget (static budget), is a type of budget that remains unchanged over the budget period regardless of changes in the level of activity of the organisation.

A fixed budget is “prepared of for one level of activity for a definite time period” (Dutta 2004 p. 25). On the contrary, a flexible budget is a budget which is designed to change with changes in activity level. It is also referred to as variable budget because it takes into account cost behaviour, such as fixed and variable costs, in connection with changes in output level or turnover (Weygandt, Kieso & Kimmel 2010). A fixed budget remains constant relative to the variation in the actual level of activity attained.

This makes it inflexible. On the other hand, a flexible budget changes with the variation in the level of actual activity, which makes it flexible (Tulsian & Tulsian 2005). A fixed budget is developed based on one level of activity and relies on the assumption that no change will occur in the prevailing circumstances, which is impractical. On the other hand, a flexible budget is based on various levels of activity (Weygandt, Kieso & Kimmel 2010). In a fixed budget, all costs are related to a single level of activity.

As such, variance analysis fails to provide valuable information about cost differences. On contrary, flexible budget analyses each cost on the ground of cost behaviour and thus gives important information about cost variances (Tulsian & Tulsian 2005). Under fixed budgets, the comparison of

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Compare and contrast the fixed and flexible budgets Assignment”, n.d.)
Compare and contrast the fixed and flexible budgets Assignment. Retrieved from https://studentshare.org/finance-accounting/1621309-compare-and-contrast-the-fixed-and-flexible-budgets
(Compare and Contrast the Fixed and Flexible Budgets Assignment)
Compare and Contrast the Fixed and Flexible Budgets Assignment. https://studentshare.org/finance-accounting/1621309-compare-and-contrast-the-fixed-and-flexible-budgets.
“Compare and Contrast the Fixed and Flexible Budgets Assignment”, n.d. https://studentshare.org/finance-accounting/1621309-compare-and-contrast-the-fixed-and-flexible-budgets.
  • Cited: 0 times

CHECK THESE SAMPLES OF Compare and contrast the fixed and flexible budgets

Budget Reporting System

Several organizations are fond of using budgets as computational tools for controlling costs which should not be the case; instead, the management should also consider behavioral aspect of budgeting so that the employees can be motivated to achieve the organizational budget goals.... In order for the management to efficiently perform the necessary management functions, the use of budgets becomes very fundamental (Hilton, 1994).... Therefore, budgets are mostly used in the planning process....
10 Pages (2500 words) Essay

What Is Accounting

Accounting is a method of keeping financial records of business transactions and for the preparation of statements concerning the business' assets, liabilities, and operating results.... Accounting consists of several aspects; one of which is bookkeeping.... A bookkeeper keeps tracks of all the company's transactions and keeps the ledgers of the company balanced....
8 Pages (2000 words) Essay

The Organizational Structure of the Business

budgets, which are kept secretive and made by the manager often, fail to implement.... The staff often reacts severely against such budgets.... True integration is lacked in budgets in which staff is not involved.... It involves executing such budgets for operating under expected competitive and economic conditions.... The paper describes the analysis of operating results, precise determination of operating issues and the ability to quickly put in place optimization strategies are used in a flexible budget....
7 Pages (1750 words) Research Paper

The Excel Limited - Activity Based Costing System

Mixed costs contain both fixed and variable attributes, and may be semi variable costs and step costs.... The company requires flexible zero based budgeting and a master budget needed to planned with all sub budgets for sales, Financial analyses of the company reveal that though liquidity position of the company is good to meet short term obligations, but its earning powers, and efficiency to collect receivables and inventory turnover is much below the industry standards....
12 Pages (3000 words) Essay

Evaluation of Financial Position - Excel Limited

Under this system, all direct manufacturing costs, and all manufacturing overheads (including fixed and variable overheads) are allocated to the products.... This report evaluates the different costing methods and inventory valuation methods, and recommends the most relevant costing model for Excel Limited....
12 Pages (3000 words) Essay

Traditional Budget Is a Rigid Tool and Should Be Discarded In Practice

In this regard, it has been found that the traditional wisdom of creating elaborate budgets on a yearly basis is not only feasible but also not desirable.... In order to explore this argument, factors which cause researchers to challenge the concept of formal budgets in the organization are discussed.... Others who have supported the notion of strict budget control in an organization are of the view that formal budgets are likely to perform in an efficient manner only when the external environment is relatively stable and there are no fluctuations....
8 Pages (2000 words) Essay

Managerial Accounting of an Organization

Activity based budgets are the flexible budgets that are based on the different cost drivers.... In activity based budgets, multiple cost drivers are used for the different activities of the business.... The budget of the organization is an integral financial plan that incorporates a systematic and organized analysis and interpretation of the company's financial forecast in respect to the products, services, markets and its application of resources....
10 Pages (2500 words) Essay

Analysis of Managing Financial Resources

This paper discusses aspects include auditing by external firms, which ensures that accounting fraud is prevented by examining the ledgers of a company with other records to ensure that the ledgers provide a true and fair view of the company's financial dealings.... hellip; A bookkeeper keeps tracks of all the company's transactions and keeps the ledgers of the company balanced....
10 Pages (2500 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us