Why flexible budget is important?

A flexible budget is an important tool for management. It helps in setting the expected costs, revenues, and profitability of the business. Further, since the flexible budget is not rigid, it can be adjusted according to the actual activity level at the end of the accounting period and used for variance analysis.

What is the flexible budget and also define its advantages?

Why make a flexible budget? The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can’t account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month.

What is a flexible budget and how is it prepared?

A flexible budget is prepared after making an intelligent classification of all expenses between fixed, semi-variables and variable because the usefulness of such a budget depends upon the accuracy with which the expenses can be classified.

What are the characteristics of flexible budget?

Main Features of Flexible Budget

  • The flexible budget covers a range of activities,
  • A flexible budget is easy to change according to variations of production and sales levels.
  • Flexible budget facilitates performance measurement and evaluation.
  • It takes into account the changes in the volume of activity.

What is a flexible budget example?

This type of budget is most often based on changes in a company’s actual revenue and uses percentages of revenue rather than static numbers. For example, a flexible budget may allot 25% of a company’s revenue to salary as opposed to allotting $100,000 to salary in a given year.

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 is flexible budget example?

What are the limitations of flexible budget?

Lack of revenue comparison A flexible budget cannot be used to compare actual expenses or revenue to expected expenses or revenue because it is adjusted on a regular basis to reflect a company’s current revenue. This can make determining whether a company’s revenue is above or below expectations difficult.

What are three types of flexible expenses?

Flexible expense examples include groceries, dining out, entertainment, and even utilities….Here are some examples of variable essential costs:

  • Groceries.
  • Cell Phone Plans.
  • Internet Services.
  • Transportation Costs (gas, level of insurance coverage, etc.)
  • Utilities.

What are 5 flexible expenses?

Flexible Expenses Categories include food and groceries, out-of-pocket medical expenses, clothing and personal expenses such as hair care, personal hygiene products, allowances and alcohol.

What are the examples of flexible expenses?

A few examples of flexible expenses include what you pay for monthly groceries, clothing, and transportation, as the total cost of all of these things will most likely vary. The biggest difference between flexible and fixed expenses is that flexible expenses give you more control over how much money you spend on them.

What are the 3 main budget categories?

What are the 3 main budget categories?

  • Needs. These are expenses that you must pay in order to live and work, such as a mortgage or rent and car maintenance.
  • Wants. These are expenses that don’t qualify as needs and don’t include your savings and payments toward debt.
  • Savings and debt repayment.

What is an example of a flexible expense?

Is rent a flexible expense?

Definition and Examples of a Flexible Expense Some expenses are fixed—payments you make regularly that stay the same from month to month, like rent or car payments—and others are flexible, meaning the total cost of these expenses changes regularly.

What is the 10 20 rule of finance?

Key Takeaways. The 20/10 rule says your consumer debt payments should take up, at a maximum, 20% of your annual take-home income and 10% of your monthly take-home income. This rule can help you decide whether you’re spending too much on debt payments and limit the additional borrowing that you’re willing to take on.