How do you prepare a flexible budget performance report?

To prepare a flexible budget performance report, you identify key figures based on the flexible budget formula. If your company’s formula says, for example, that COGS should be 25 percent of sales and sales were $75,000 for the period, COGS should be $18,750.

What is a flexible budget when 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 is the initial step in preparing a flexible budget?

In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and expenses being budgeted. The first budget to be prepared is usually the sales budget. The cash budget summarizes future plans for acquisition of fixed assets.

Why a flexible budget can improve performance evaluations?

The flexible budget responds to changes in activity, and may provide a better tool for performance evaluation. It is driven by the expected cost behavior. Fixed factory overhead is the same no matter the activity level, and variable costs are a direct function of observed activity.

What is the primary difference between a static budget and a flexible budget?

the static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. Explanation: The static budget is prepared with only one single level of activity. The flexible budget can be adjusted for different level of activities.

What is budget and steps in preparation of flexible budget?

Flexible budgets are prepared where the level of activity cannot be estimated with accuracy. A flexible budget recognizes the difference between fixed, semi-fixed and variable cost and is designed to change in relation to the change in level of activity.

Can a LEED company prepare a flexible budget?

Leed Company prepares a flexible budget for 70%, 80%, 90% and 100% capacity. Notice how the variable costs change with volume but the fixed costs remain the same. A flexible budget can be prepared for any level of activity.

Which is more meaningful, a static budget or a flexible budget?

It is the budget which would have been prepared at the beginning of the period, had the management known the exact actual output. Any comparison between actual results and a flexed budget is more meaningful than a comparison with static budget especially if the actual activity level deviates significantly from the budgeted activity level.

Is the budget prepared on a fixed level of activity?

The budget is prepared on the basis of fixed level of activity. In other words, a fixed budget remains unchanged irrespective of the change in volume or level of activity. It is presumed that the forecast and the actual level of activity, both production and sales, would be one and the same.