A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. The budget is then compared to actual expenses for control purposes.

What is the flex in a flexible budget?

A flexible budget, or “flex” budget varies with changes in the amount of actual revenue earned. In its simplest form, the flex budget will use percentages of revenue for certain expenses, rather than the usual fixed numbers.

When would you use a flexed budget?

A flexed budget is a budget prepared to show the revenues, costs and profits that should have been expected from the actual level of production and sales. If the flexed budget is compared with the actual results for a period, variances will be much more meaningful.

Why is a flexible budget essential for managers?

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 type of costs are required to flex a budget?

For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount. In short, the flexible budget is a more useful tool when measuring a manager’s efficiency.

What does it mean to have a flex budget?

A flexible budget, or “flex” budget varies with changes in the amount of actual revenue earned. In its simplest form, the flex budget will use percentages of revenue for certain expenses, rather than the usual fixed numbers. This allows for an infinite series of changes in budgeted expenses that are directly tied to revenue volume.

How is a flexible budget calculated in accounting?

A flexible budget calculates different expenditure levels for variable costs, depending upon changes in actual revenue.

How does flexible budget work for Yoga Inc?

When flexible budgets are adjusted to a series of possible activity levels, the resulting data helps anticipate the effect of changes in activity levels on revenues and costs thus allowing management to make useful adjustments to plans. Following is the static budget and actual results of Yoga Inc. for the month of April 20X4.

What is the difference between a flexible budget and a static budget?

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. Static Budget vs. Flexible Budget