FLEXIBLE BUDGET

Flexible Budget Example

The flexible (flex) budget bridges the gap between actual results and the static (official) budget.  The flex budget combines actual sales and production levels with expected prices and costs.  With the static budget, flexible budget and actual results, variances from the original plan can begin to be calculated.  If these variances are significant, their root cause can be addressed which is referred to as management by exception. 

BENEFITS OF A FLEXIBLE BUDGET

Flexible budgeting facilitates the comparison of your company's actual results with its annual budget.  This allows your organization to better understand how well it is achieving the objectives set out during the planning phase.

THE FLEXIBLE BUDGET PROCESS

• Compile the static budget and actual results for the period(s) being examined
• Calculate the flexible budget amounts
• Calculate the variances between the three budgets
• Review the results for abnormalities
• Investigate abnormalities, if they exist

FURTHER READING

These links elaborate on the topic at hand.  They serve as a good starting point for those companies that would like to learn more or would like to address these topics “in house.”  For those firms that prefer to continue to focus on their current responsibilities and would value the objective viewpoint of a professional from outside of the organization, click here.

Accounting Principles II:  Flexible Budgets - CliffsNotes
Excerpt:  “A flexible budget provides budgeted data for different levels of activity. Another way of thinking of a flexible budget is a number of static budgets. For example, a restaurant may serve 100, 150, or 300 customers an evening.”

ImperoCo Business Solutions - "Developing Organizational Success."