How does a flexible budget differ from a master budget?
The key difference between master budget and flexible budget is that master budget is a financial forecast that contains all budgeted revenues and costs for the upcoming accounting year whereas flexible budget is a budget that is adjusted by incorporating the changes in the number of units produced.
What is a flexible budget variance?
What is a Flexible Budget Variance? A flexible budget variance is a calculated difference between the planned budget and the actual results. In the example above, the company has set a target of 85% production capacity. The budgeted or planned sales volume of 212,500 units yields a $740,625 profit.
What is master budget variance?
What is the Master Budget variance? Difference between ACTUAL results and the MASTER BUDGET which is broken down into (1) volume variance and (2) flexible budget variance. How is a flexible budget prepared? By multiplying budgeted revenue per unit and variable cost per unit by the actual volume achieved.
What are the three types of flexible budget variances?
Favorable variances arise when actual results exceed budgeted. Unfavorable variances arise when actual results fall below budgeted. Favorable profit variances arise when actual profits exceed budgeted profits. Unfavorable profit variance occurs when actual profit falls below budgeted profit.
What is the purpose of the flexible budget?
The flexible budget can be used for the determination of budgeted sales, costs, and profits at different activity levels. It helps the management to decide the level of output to be produced in order to generate profits for the business based on budgeted cost at different activity levels and budgeted sales.
When should flexible budget be used?
The flexible budget is especially useful in businesses where costs are closely aligned with the level of business activity, such as a retail environment where overhead can be segregated and treated as a fixed cost, while the cost of merchandise is directly linked to revenues.
What are the advantages of flexible budget?
Flexible, rolling budgets empower entrepreneurs to cope with change. This nimble planning process lets you adjust spending throughout the year; benefits include less overspending, more opportunities and speedier responses to changing market and business conditions.
Who uses flexible budgets?
A flexible budget works for people who work on commission or who have expenses that vary widely from month to month. The important aspect of using a flexible budget is to spend equal to or less than the income each month.
What do you mean by flexible budget?
A flexible budget is a budget that adjusts to the activity or volume levels of a company. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously “flexes” with a business’s variations in costs.
What is the difference between static and flexible budget?
A static budget forecasts revenue and expenses over a specific period but remains unchanged even with changes in business activity. Unlike a static budget, a flexible budget changes or fluctuates with changes in sales and production volumes.
What is master budget?
The master budget is the aggregation of all lower-level budgets produced by a company’s various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan.
Is a flexible budget always better?
The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace. Fixed versus variable expenses in a flexible and static budget.
What makes a flexible budget different from the Master Budget?
Any difference between the flexible budget and actual costs and revenue is referred to as a flexible budget variance. There are two main reasons for a company’s actual performance to be different from the master budget forecast: differences in spending and differences in revenue activity, which often is based on sales volume.
What does it mean to have a variance in a Master Budget?
When actual costs are known, problems with the master budget can be found and analyzed by comparing figures obtained using the flexible budget formulas to actual costs. Any difference found is referred to as a spending variance, while a difference between the volume of sales in the master budget and the actual sales volume is an activity variance.
What’s the difference between a flexible budget and a variance?
Definition of Flexible Budget and Flexible Budget Variance. First, a flexible budget is a budget in which some amounts will increase or decrease when the level of activity changes. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget.
What is total fixed cost in Master Budget?
Total fixed cost – a fixed amount added to the budget regardless of the number of units produced or sales activity. A master budget is rarely perfect. When actual costs are known, problems with the master budget can be found and analyzed by comparing figures obtained using the flexible budget formulas to actual costs.