7 Flexible Budgeting

Question 1

What is a fixed budget?

Answer 1

This is a budget set prior to the control period and not subsequently changed in response to changes in activity, costs or revenue

Question 2

What is budget flexing?

Answer 2

This involves flexing VC’s from original budgeted level to the allowances permitted for actual volume achieved - while maintaining FC’s at original levels

Question 3

What are the 4 main characteristics of a budget system necessary to reward and motivate staff?

Answer 3

1. Participation = Staff feel involved in the process, not seen as something enforced on staff
2. Controllability = Managers just judged over areas they can influence
3. Achievability = Unrealistic budgets have a demotivational effect
4. Clarity = No doubt as to what performance measure is or who is responsible for certain budget areas