Question 1 Budgeting Fixed and flexible budgeting in an organization

Question 1 Budgeting

Fixed and flexible budgeting in an organization.

Budgets that are both set and flexible have important distinctions. It is necessary to establish a budget that is both flexible and fixed. This is the most critical and essential, as well as the money for it. At the same standard of operational profitability, a flexible budget gives better insight into capacity utilization levels. In the time under review, a set budget serves as a blueprint for the organization. The distinctions between a fixed and a flexible budget are demonstrated in the following examples.
- Revisions to the budget, also known as a flexible budget, are made in response to changes in the organization's needs. Fixed budgets are known as static budgets since they don't vary at all and are hence regarded as steady budgets.
There is just one level of activity at which fixed budgets function, whereas flexible budgets have numerous levels of activity.
- A flexible budget affects every aspect of an organization's operations. A drop or rise in production has no effect on the fixed budget, which remains constant regardless of how much activity changes.

There are two types of budgets: fixed and flexible. Fixed budgets are pre-set budgets that advocate zero variation, whereas flexible budgets provide predictions across numerous business scenarios that allow for comprehensive information about expenses and revenues at varying levels of activity. When working with real data, the flexible budget has its own set of challenges; by contrast, when working with hypothetical data, a fixed budget is much simpler. Based on the outcomes of the current level of activity, the budget is flexible. Based on management's projections for anticipated events, the fixed budget is determined. Based on the actual production volume and operational efficiency and inefficiency, a flexible budget may be used to analyze and adjust the recognized ones that are more essential.

Because the characterization of future demands is not always exact, a set budget helps management predict revenue and spending for a time, but not accurately enough. Only specific parameters must be satisfied, and there can be only one activity setting. If you're working with a set budget, you're assuming that the starting conditions will stay the same for the foreseeable future. As a result, a machine's performance, efficiency, or power may be determined with little to no effort. Fixed, variable, and semi-variable expenses make up a flexible budget's costs. The semi-variable expenditures are then categorized according to the variable and constant expenditures. In order to provide an idea of the potential costs associated with various levels of output, several budgets are prepared.

Flexible budgets have both advantages and disadvantages.

Even a flexible budget has its advantages and disadvantages, no matter how strange it may seem. The time required to implement flexible budgets necessitated regular monthly controls and procedures. Furthermore, it is imperative that you demand responsibility for any and all adjustments made to this budget. Budget flexibility does not remedy deviations; rather, it aids in planning for the future. Because revenue is still determined at the end of the month, spending cannot be changed backwards. However, it is possible that regularities will be taken into account, making future cost planning easier and more precise. When you have a flexible budget, you may easily increase it based on your real earnings.

Weak sides

- Confusing There are no extraneous details in a budget, as it only specifies a single dollar amount that must be met. Flexible budgets need more planning in order to keep track of expenses and account for changes over time. Over time, budgeters may get confused and less able to keep to their plans if the range is constantly changing.
- Cheating is included in this definition. Simply put, if you want to keep your spending under control, do not exceed your budget. Flexible budgets complicate matters because they introduce additional restrictions that may be readily violated, even by those who have made a concerted effort to adhere to the established boundaries.
- Having a less rigorous plan each month, flexible budgets are less likely to foster the same level of discipline or long-term habits as more traditional options since they are simpler to keep to.

Strengths

- Seasonal costs are those that don't happen all year round. Flexible budgeting can be utilized as a short-term solution for significant purchases, without requiring further modifications in the months to come.
- Holiday bonuses that arrive at an opportune moment or for a year of labor are examples of irrational income. Flexible spending plans allow you to take advantage of sporadic payments when you most need them.
- Stress reduction leads to increased enjoyment. Budgeting is necessary, but it may be difficult if you fail to save money or lose out on chances. As a result, the budget is flexible and you may relax at the end of each month without worrying about it. You should not use that as a justification to entirely abolish borders, but.

Management accountants have showed us the need of flexible budgeting in the British food and beverage business. A poll was performed, and people in charge of management accounting were questioned about their experiences. The pie chart shows the results of 117 respondents' votes on the three categories "not important," "moderately essential," and "important" when it comes to flexible budgeting.

Positive and negative behavioral aspects of budgeting

When it comes to budgeting, senior managers tend to include fewer subordinates and non-executive employees. As a result, this helps to fulfill one of the objectives of budgeting, which is to motivate. Other aims may be harmed as a result, such as the evaluation of real performance being distorted. If budget managers add "slack" to their plans, it will be simpler to meet these goals.