In other words, a flexible budget uses the revenues and expenses produced in the current production as a baseline and estimates how the revenues and expenses will change based on changes in the output. This is why it’s often called a variable budget.

What is the purpose of preparing 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.

How do you do a flexible budget performance report?

To prepare a flexible budget performance report, you identify key figures based on the flexible budget formula. If your company’s formula says, for example, that COGS should be 25 percent of sales and sales were $75,000 for the period, COGS should be $18,750.

What is flexible budget based on?

A flexible budget adjusts based on changes in actual revenue or other activities. The result is a budget that is fairly closely aligned with actual results. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels.

What is flexible budget report?

A flexible budget performance report is used to compare actual results for a period to the budgeted results generated by a flexible budget. This approach results in budgeted expenses that are significantly more relevant to the actual performance that an organization experiences.

What are the two meanings of a flexible budget?

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 fixed and flexible budget?

A fixed budget is a budget that doesn’t change due to any change in activity level or output level. The flexible budget is a budget that changes as per the activity level or production of units. The fixed budget is static and doesn’t change at all.