File Name: difference between fixed budget and flexible budget .zip
- fixed budget
- Why a Flexible Budget May Be a Good Option for Your Business
- Difference between Fixed Budget and Flexible Budget
- What is the key difference between a static budget and a flexible budget?
A budget that does not take into account any circumstances resulting in the actual levels of activity achieved being different from those on which the original budget was based. Consequently, in a fixed budget the budget cost allowances for each cost item are not changed for the variable items. Compare flexible budget. Subjects: Social sciences — Business and Management. All Rights Reserved.
Everything you need to know about the types of budgets. Budget is a financial statement that provides detailed information about the revenue and expenditure of a particular year. However, there is no single rule or pro forma available to prepare budget, as in case of balance sheet and profit and loss account. You should note that different organizations follow different rules and methods to prepare their budgets. Fixed Budget 2.
Flexible Budget 3. Long-Term Budget 5. Short-Term Budget 6. Basic Budget 7. Current Budget 8. Master Budget. Performance Budget Sales Budget Production Budget Direct Materials Budget Direct Labour Budget Factory Overheads Budget Financial Budget. Administrative Expenses Budget Selling and Distribution Expenses Budget Capital Expenditure Budget Production Cost Budget Purchase Budget Labour Budget Cash Budget Incremental Budget Rolling Budget.
Fixed budget is based on the assumption that there will be no change in the level of activity. This budget is more useful for a short period of time when level of activity is not expected to change. Practically, this budget is of less use and has limited applications in controlling cost.
In flexible budget, budgeted figures can be changed according to the level of activity. The budgeted figures are changed according to these production levels. Furthermore, flexible budget recognizes the behavior of cost into variables, semi variable and fixed cost. It is more realistic and practically used for cost control purpose. Functional budget is the budget which relates to a specific function of the business, e.
These budgets are prepared for each function and they contribute to the master budget. The number of functional budget depends upon the size and nature of the business. Production Budget :. The production budget is prepared for making a plan of production e. The production manager is responsible for the preparation of production budget and executing it. Production budget is generally based on sales budget.
The sales budget is a statement of planned sales in quantity and value both. In sales budget, sale is forecasted during the budget period. The sales manager is responsible for preparation of this budget. Purchase Budget :. This budget is prepared for every purchase item to be purchased in each department. The purchase manager is entrusted with the responsibility of making this budget. This budget enables the purchase department to make bulk purchases. Production Cost Budget :.
Production cost budget is prepared to show the cost of production for the units of budgeted production. It is also known as manufacturing cost or work cost budget and includes cost of material, cost of labour, cost of direct expenses and factory overheads.
Overheads Budget :. Factory Overheads Budget :. Budget includes estimation of indirect labor cost, indirect material cost and indirect expenses. Administrative Overheads Budget :. This budget is prepared for control of all administrative staff expenses. These expenses are generally fixed in nature. This budget is prepared with the help of past experience and anticipated changes. Administrative Overheads Budget is prepared and executed by administration manager.
Selling and Distribution Budget :. In this budget all expenses relating to the selling and distribution of various products are estimated for the budget period. This budget is closely related sales budget. Selling and distribution overheads are divided into fixed and variable according to the volume of sales. In this budget, estimates are made for the purchase of capital assets or fixed assets during the period of budget, e. Plant Utilisation Budget :. This budget is prepared to know the plant facility required for production.
The purpose of this budget is to decide the requirement of each process on plant, cost of machines, overtime working, expanding the production, utilization of surplus capacity. Research and Developmental Cost Budget :. Generally in every business, research and development costs are to be incurred so as to avoid the product to become outdated.
Besides this, expanding business also need research and development. Cash Budget Financial Budget :. The cash budget is the most important as it controls the cash. It is a detailed statement of cash receipts, cash payments and cash balance for the budgeted period. Cash Budget coordinates-and controls the financial aspects of business. This budget is prepared after the preparation of all other functional budgets. This budget is prepared by the chief accountant of the firm.
Long-term budgets are prepared for a period exceeding one year. They are only forward looking plans. They act as a guidelines for preparing short term budgets. Long-term budgets are not meant for immediate implementation. A budget prepared for a period less than a year is called short-term budget. Short term budgets are prepared for actual implementation and it has a practical value.
Essentially it is a long-term budget. The conditions and assumptions for preparing budgets should remain unaltered for a long period. Basic budgets are like long-term budget act as a guidelines for preparing short-term budgets. A budget prepared for a short time is called a current budget. It is meant for actual implementation. Conditions prevailing at the present are the basis for preparing these budgets.
Functional budgets are the budgets prepared for various activities of a firm. Master budget is a summary of all functional budgets. In a master budget a summary of functional budgets are incorporated. Master budget takes two forms — a budgeted profit and loss account and budgeted balance sheet. In the budgeted profit and loss account all cost and revenues of all functional budgets are shown in summary form. It reveals the forecasted profit or loss for the budget period.
In budgeted balance sheet all assets and liabilities are shown. Fixed budget is prepared for a specific level of activity forecasted. It is prepared on the assumption that actual activity will not vary from budgeted activity level. If the actual activity is different from the budgeted activity, the fixed budget becomes useless. In the fixed budget no provision is made for its modification to suit the actual level of activity.
Why a Flexible Budget May Be a Good Option for Your Business
Everything you need to know about the types of budgets. Budget is a financial statement that provides detailed information about the revenue and expenditure of a particular year. However, there is no single rule or pro forma available to prepare budget, as in case of balance sheet and profit and loss account. You should note that different organizations follow different rules and methods to prepare their budgets. Fixed Budget 2. Flexible Budget 3. Long-Term Budget 5.
Post a Comment. Following are the main differences between static and flexible budget: 1. Nature A static budget does not change with the actual volume of the output achieved. A flexible budget is designed to change appropriately with the level of activity attained. Scope A static budget cannot ascertain costs correctly in case of any change in circumstances. Flexible budget can easily ascertain costs in different levels of activities.
Difference between Fixed Budget and Flexible Budget
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The budget can be understood as a quantitative plan that acts as an estimate of future operation. Based on the Capacity, there are two types of budgets prepared in cost accounting, namely, fixed budget and flexible budget. Fixed Budget is a budget that remains constant, irrespective of the levels of activity, i. On the contrary,.
Flexible budget can be suitably recasted quickly according to level of activity attained. Fixed budget assumes that conditions would remain static. Flexible budget is design to change according to changed conditions. Costs are not classified according to their variability i.
What is the key difference between a static budget and a flexible budget?
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