7. Flexible Budgeting

Question 1

What is a fixed budget?

Answer 1

A budget set prior to the control period and not subsequently changed in responses to changes in activity, costs or revenue.

Question 2

What does budget flexing involve?

Answer 2

Flexing variable costs from original budgeted levels to the allowances permitted for actual volume achieved while maintaining fixed costs at original budget levels

Question 3

What does a flexed budget do?

Answer 3

Tell us what the original budget would have been, had we known exactly how many items we were going to make and sell

Question 4

What are two key uses of budgets?

Answer 4

Evaluating actual performance, and setting targets to motivate managers

Question 5

What are the 4 key characteristics of a budget that are required for it to be a good motivator for staff?

Answer 5

1. Participation in budget creation
2. Controllability / influence over area
3. Achievability of budget
4. Clarity of performance measures and responsibility