Description
Budgeting is a tool used by management for performing the functions of planning, coordinating, and controlling operations of a business. Managing accounting concepts describe two main types of budgeting, static budgets and flexible budgets. Respond to the following in a minimum of 400 words. Differentiate between the two types of budgets. Provide an example of the type of business or company that would benefit from using a flexible budget. Provide support for your business selection and include the advantage for using a flexible budget over a static budget.
Explanation & Answer
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Statistic Budget
A statistic budget is also referred to as a statistical budget. With them, budget analysis and
financial managers usually look for means to change their spending to match the budget, which
helps them not keep changing the budget to give room for real spending required. There are a few
characteristics of these static budgets, and they include the following:
They usually make use of anticipated values that are computed just before the beginning of a
provided fiscal year. They are usually not affected by those adjustments of expenses and revenues.
Statistical budgets mostly make use of outflows and inflows planned for every unit of a business,
project, department. More to give room for valuable data and that can be made of use to measure
the performance directly in accepting the figures that are budgeted for the flow of cash, expenses,
and revenue.
These budgets usually make use of older budgets to avail revenue estimates and amount of
budget expenses. In static budgets, it is believed that the more there is the availability of data, and
the more there is a consistent revenue of the company then the more the statistical budget will be
effective in availing insights that are valuable for forecasting budgets and making decisions. We
believe that the component of statistical analysis of a statistic budget is usually where the value is
expected to be found for most businesses through the computation of financial data obtained
through the use of statistic budgets. Both senior and regular management can better financial
planning and analysis and overall strength of competition.
Flexible Budgets
Flexible budgets can also be called variable budgets that are usually a finance plan that
includes revenues estimated and those expenses determined by the real output amount. In short, we
can say that flexible uses of expense and revenues are produced in the current production as an
estimate and baseline of how the expenses and revenues can make changes based on the output
changes. This is the reason why they are mostly referred to as available budgets. These budgets
could still be made of use just after accounting to examine both unsuccessful and successful areas
of the previous performances.
The management of a business usually keenly compares the real statistics of performance
with the budgeted figures where the business performs well and where the business requires some
more improvement. For instance, flexible budgets are mostly meant to make predictions of the
effects of volume changes and still ways in which those impact expenses and revenues. For the
managers to accurately predict the cost's changes, they have to identify the variables costs and
fixed costs. The latter will constantly be within the range of relevant operations, in which the
variable costs will keep on heightening as with increased production. Variable costs can be
explained inside budget as a constant rate per the produced unit or the total revenue percentage.
Differentiate between the two types of budget.
The main reason why statistic budgets are used is because of the analysis of variance. This
is because this variance analysis usually shows how a person can make a budget are under or over
the former projections through dollars and percentages. Foe even current companies, it might be
elementary for one to make plans since they can compare that which is current and that which are
expecting. In later last years, a person could adjust their budget concerning the percentages of
variances. These budgets usually become successful once a person has a significant awareness of
gauging which costs and incomes can be, foregoing unique conditions.
Contrarily, flexible budgets are usually sophisticated methods. This is because one can come
up with the budget during the middle of the period of reporting. Those budgets usually demand
that one be aware of the variable costs and fixed costs in advance and how changes in income
affect expenses. An example of a company that can use flexible budgets is manufacturing
companies. This is because flexible budgets allow companies to cope up with the daily
requirements of their activities.
Advantages of using flexible budgets over static budgets include the following: flexible
budgets usually give room for an organization to draw changes more when daily activities fail to
meet expectations. These budgets can also be used to compare real-time results and those that are
not. The flexible budget also enables a company to make use of a road map well to plan the
coming fiscal year.
References
Coleman MM, Blatt B, Greenberg L. Preparing students to be academicians: A national studentled summer program in teaching, leadership, scholarship, and academic medical career-building.
Fox RD, Harvill LM. Self-assessment of need, relevance, and motivation to learn as indicators of
participation in continuing medical education. Med Educ.
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Statistic Budget
A statistic budget is also referred to as a statistical budget. Budget ana...
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