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Management Accounting Flexible Budget Math Solution



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Flexible Budget এই অংকটি খুব গুরুত্বপূর্ণ মনোযোগ দিয়ে করবেন। আশা করি কমন পড়বে। ভুল থাকলে ক্ষমা সুন্দর দৃষ্টিতে দেখবেন।
What is a flexible budget?
A flexible budget is a budget that adjusts to the activity or volume levels of a company. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously "flexes" with a business's variations in costs. This type of budgeting often includes variable rates per unit rather than a fixed amount, which allows a company to anticipate potential increases or decreases in monetary needs.

This type of budget is most often based on changes in a company's actual revenue and uses percentages of revenue rather than static numbers. For example, a flexible budget may allot 25% of a company's revenue to salary as opposed to allotting $100,000 to salary in a given year. This accounts for any changes in both the company's revenue and staff that may occur throughout the year.

Types of flexible budgets
A company can produce several variations of a flexible budget that range from basic to sophisticated depending on the company's needs. The following are the three types of flexible budgets most commonly used:

Basic flexible budget
This type of budget flexes with a company's expenses that change directly in relation to its revenue. A basic budget may build in a percentage that varies based on revenue. This type of budget is typically used to denote cost per unit or percentage of sales.

Intermediate flexible budget
An intermediate flexible budget takes into account expenses that go beyond a company's revenue. Typically, this budget includes costs that are related to activity in addition to or rather than revenue. For example, a business's insurance policy costs may vary based on how many employees the company has and may increase if the company hires new employees.

Advanced flexible budget
This type of budget takes into account the variation and ranges of expenses based on each category of a company's budget. An advanced flexible budget will also change based on the actual expenses for each category.

Disadvantages of a flexible budget
Like many accounting tools, a flexible budget can also come with disadvantages. Understanding the disadvantages of this type of budgeting can help you determine if a flexible budget is right for your company. The following are a few downsides that may result from a flexible budget:

Example of a Flexible Budget
ABC Company has a budget of $10 million in revenues and a $4 million cost of goods sold. Of the $4 million in budgeted cost of goods sold, $1 million is fixed, and $3 million varies directly with revenue. Thus, the variable portion of the cost of goods sold is 30% of revenues. Once the budget period has been completed, ABC finds that sales were actually $9 million. If it used a flexible budget, the fixed portion of the cost of goods sold would still be $1 million, but the variable portion would drop to $2.7 million, since it is always 30% of revenues. The result is that a flexible budget yields a budgeted cost of goods sold of $3.7 million at a $9 million revenue level, rather than the $4 million that would be listed in a static budget.
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Management
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