3. STATIC BUDGETS
A static budget contains elements where expenditures remain unchanged with variations to sales levels. Overhead costs represent one type of static budget, but these budgets aren't confined to traditional overhead expenses. Some departments may have a fixed amount of money set in budget to spend, and it is up to managers to make sure such amounts are spent without going over-budget. This condition occurs routinely in public and nonprofit sectors, where organizations or departments are funded largely by grants. (Chron.com). A static budget is one that remains constant even as other factors, such as sales volume and revenue, change.
Advantages of Static Budgets
a) One major advantage of the static budget is that it's easy to …show more content…
Instead, they are adjusted based on changes in business operations and production outputs. The main benefit of using such a budgeting system is that it allows businesses to increase spending to take advantage of opportunities presented by better-than-expected revenues, according to AZCentral.com.
b) Flexible budgets change as new data becomes available. Businesses can make appropriate adjustments to spending levels whenever there are changes in the external environment. According to Accounting Tools, flexible budgets are especially useful in businesses in which costs are closely aligned with the level of business activity. For instance, in a retail environment, the cost of merchandise is linked to revenues and the overhead is a fixed cost.
c) Flexible budgets also give managers the ability to assess the performance of the company and predict the financial results at different activity levels. A flexible budget also enables a manager to control cost, because it shows where the actual performance deviated from the planned performance, according to the Houston …show more content…
Flexible budgets require more planning in order to track expenses and adjust for any differences between periods. A range that changes over time can make the budgeting processing overly confusing for some users and therefore reduce the odds that they will successfully follow
A static budget contains elements where expenditures remain unchanged with variations to sales levels. Overhead costs represent one type of static budget, but these budgets aren't confined to traditional overhead expenses. Some departments may have a fixed amount of money set in budget to spend, and it is up to managers to make sure such amounts are spent without going over-budget. This condition occurs routinely in public and nonprofit sectors, where organizations or departments are funded largely by grants. (Chron.com). A static budget is one that remains constant even as other factors, such as sales volume and revenue, change.
Advantages of Static Budgets
a) One major advantage of the static budget is that it's easy to …show more content…
Instead, they are adjusted based on changes in business operations and production outputs. The main benefit of using such a budgeting system is that it allows businesses to increase spending to take advantage of opportunities presented by better-than-expected revenues, according to AZCentral.com.
b) Flexible budgets change as new data becomes available. Businesses can make appropriate adjustments to spending levels whenever there are changes in the external environment. According to Accounting Tools, flexible budgets are especially useful in businesses in which costs are closely aligned with the level of business activity. For instance, in a retail environment, the cost of merchandise is linked to revenues and the overhead is a fixed cost.
c) Flexible budgets also give managers the ability to assess the performance of the company and predict the financial results at different activity levels. A flexible budget also enables a manager to control cost, because it shows where the actual performance deviated from the planned performance, according to the Houston …show more content…
Flexible budgets require more planning in order to track expenses and adjust for any differences between periods. A range that changes over time can make the budgeting processing overly confusing for some users and therefore reduce the odds that they will successfully follow