Exercise flexible budgets

Problems of flexible budget

The model is designed to match actual expenses to expected expenses, not to compare revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. A good method to get a clearer picture would be to implement a flexible budget. A minor problem because in the case of the holding company it is very difficult to put focus on the volume of customers as this may experience a large fluctuation depending on the location of the franchise. However, before deciding to switch to the flexible budget, consider the following countervailing issues. If so, one can integrate these other activity measures into the flexible budget model. Table 2. Some expenditures vary with other activity measures than revenue. Any such error in determining the range could lead to a distortion in the evaluation resulting in making poor decisions. Budget versus actual reports under a flexible budget tend to yield variances that are much more relevant than those generated under a static budget, since both the budgeted and actual expenses are based on the same activity measure. Thus while the sales may not reach what was expected, the franchisee continues to pay the fee thus this should not be an issue entirely for the franchisor.

Revenue comparison. This updates the variable costs in the flexible budget. Table 2.

flexible budget problem with solution

Basing said standard budget on best practice can ensure that the franchises are operating within standard. Enter actual activity measures into the model after an accounting period has been completed.

how to calculate flexible budget

Franchisee Results. However simply using the total of the standard budget and comparing it with the total of the franchisee may give a certain amount of information but it does not give us a better picture of what is happening.

managerial accounting flexible budget problems

Holding Company vs.

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Flexible Budgets