ACC 543 Team A Flexible Budgets Paper
ACC 543 Team A Flexible Budgets Paper
Popular in Course
verified elite notetaker
Popular in Department
This 5 page Study Guide was uploaded by topworker Notetaker on Thursday November 19, 2015. The Study Guide belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 22 views.
Reviews for ACC 543 Team A Flexible Budgets Paper
I'm a really bad notetaker and the opportunity to connect with a student who can provide this help is amazing. Thank you so much StudySoup, I will be back!!!
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 11/19/15
Running head: FLEXIBLE BUDGETS 1 Flexible Budgets Team A ACC/543 February 3, 2014 Thomas Frank FLEXIBLE BUDGETS 2 Flexible Budgets The flexible budget steps beyond the master budget in organizing projected revenue and cost data. Managerial accountants utilize the flexible budget to accommodate for varying levels of activity such as sales volume. As the name implies, “flexible budgets flex, or change, when the volume of activity changes” (Edmonds, Edmonds, Olds, McNair, Tsay, & Schneider, 2007, p. 1061). Both the flexible budget and the master budget (also called a static budget), utilize “the same per unit standard amounts and the same fixed costs” (Edmonds, Edmonds, Olds, McNair, Tsay, & Schneider, 2007, p. 1062). Insert: Zumara’s paragraph on relationship between fixed and variable costs Insert: Charles’s paragraph on differences between static and flexible budgets (Insert: Nanda’s paragraph on flexible budget lends itself to costvolumeprofit analysis:) Costs, sales volume and profitability all play roles in a company's selection of the optimal pricing strategy. Flexible budgets can increase or decrease depending on the amount of work a department anticipates in the coming period. Adjusting for the changing work volumes allows the budget to more closely approximate the fluctuations in costs from period to period. Managers often employ sophisticated planning and analysis techniques such as flexible budgets and costvolumeprofit analyses to place capital in the most productive parts of the business. Costvolumeprofit analysis helps managers forecast how many units they need to break even and how each increase in volume impacts the bottom line. Analysts assign the variable costs to each unit to determine the contribution margin from each unit. For example, if a product FLEXIBLE BUDGETS 3 costs $10 in materials and requires three machine hours to complete, then its total variable cost is $12.50. Subtracting its variable cost from its sales price gives the margin it contributes toward fixed costs and profit. So if that product sold for $20, then each sale contributes $7.50 toward fixed costs and profit. Flexible budgeting doesn’t directly affect costvolumeprofit, because both techniques allocate costs in the same manner. However, flexible budgeting can help ensure the manager attributes and controls mixed costs appropriately. For example, a manager on a fixed budget may overstate fixed costs and overstate contribution margin. If the manager simply lists the fixed electrical cost at $6,430 and the variable cost per unit at $10, then each unit contributes $10 and the expected breakeven point is 643 units rather than 1,129. Static vs. Flexible Budgets The definition of a static budget according to investopedia.com is, “a type of budget that incorporates anticipated values about inputs and outputs that are conceived before the period in question begins”. Oppositely accountingcoach.com defines a flexible budget as, “a budget that adjusts or flexes for changes in the volume of activity”. These are the basic definitions of the two budget types. Below we will discuss some of the more detailed differences. A static budget is stationary in nature meaning it is unchanging. So when the actual volume of output increases or decreases compared to the standard a static budget remains the same. A flexible budget would be a better option in this type of environment, as the actual volume of output changes the budget is able to change appropriately. FLEXIBLE BUDGETS 4 A static budget is limited when faced with changes in costs. It cannot correctly ascertain them in case of a change in circumstances. A flexible budget has been designed to change and adapt to different levels of changing costs and activities. A static budget is prepared with the assumption that all conditions and costs will remain the same, while a flexible budget is prepared at different levels taking into consideration the possible changes in the operation of the business. A flexible budget also has a much wider application making it a great for cost control. Most importantly a flexible budget is prepared by looking at costs according to their variable nature. This important in an everchanging business where the budget changes based on the volume of output. Conclusion: (to be edited)…In addition to assisting in determining appropriate standards, the flexible budget can be used to determine performance evaluations as well. For example, “the flexible cost variances offer insight into management efficiency” (Edmonds, Edmonds, Olds, McNair, Tsay, & Schneider, 2007, p. 1067). Because management is ultimately responsible for flexible cost variances and their relationship to the set standards, the flexible budget is an invaluable tool towards the managerial accountant’s success in determining the most accurate projected costs in relationship to revenue. FLEXIBLE BUDGETS 5 References Butner, S. (n.d). How does a flexible budget affect costvolume profit analysis? Retrieved from http://yourbusiness.azcentral.com Edmonds, T. P., Edmonds, C. D., Olds, P. R., McNair, F. M., Tsay, F. M., & Schneider, B. Y. (2007). Fundamental financial and managerial accounting concepts. New York, NY: McGrawHill. Static Budget Definition. (2014). Retrieved from http://www.investopedia.com/terms/s/staticbudget.asp Flexible Budget. (2014). Retrieved from http://www.accountingcoach.com/blog/flexiblebudget
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'