Please reply to the following using at least 175 words per reply. Be professional and constructive in you reply. Be sure to use FULL APA references and in-text citations.
1. Both static budgets and flexible budgets offer advantages and disadvantages for business owners. A static budget is planned ahead of time-based on a forecast of future activity, which is the budget that will never change. It is planned about a year early, and it’s divided into meagerer reporting periods such as monthly and quarterly. A business owner will utilize a static budget for a variation report that will tell you how much your budget is over or under the original predictions via percentage dollars (Bigelow, 2019). It is simple for a new business to plan for the future when comparing the expected budget and the actual reporting period. Static budget works best when there is a moderate quantity of fact assessing what revenues and costs will be, barring unusual situations.
Flexible budgeting is a more complex method because you can change the budget during the middle of a reporting period. A business owner may not have the time, experience, or preference to modify the budget regularly. There can be unforeseen outcomes from an unexpected volume change, which you would not know to plan (Bigelow, 2019). It requires knowledge in advance of which costs are fixed or variable and how a change influences expenses in revenue. It presents a greater level of control where a new business would want to keep a firm cap on costs, capping several flexible or variable expenses to a volume percentage which will assist in accomplishing this. It could differ significantly from the initially planned and flexible budget offering a real-time glimpse of the business expenses and revenue.
An example of a business that would benefit from using a flexible budget is a seasonal business such as a firework company that operates during holidays such as Memorial Day, Fourth of July, and New Year in states where it’s legal to sell fireworks. It’s beneficial for the business because the costs are high-priced regulated with the level of business activity, with no long-term planning, determining the budget and how to spend the income, and changes are made during the reporting period. The overhead can be separated and controlled as a fixed cost, while the merchandise cost is linked to earnings. With the static budget, you cannot make changes, and you need to determine your budget and estimate income and how to spend your earnings.
Reference:
Bigelow, L. (2019). Static vs. Flexible Budgets for New Businesses. https://smallbusiness.chron.com/static-vs-flexible-budgets-new-businesses-20879.html
Your post is right on track. Flexible budgets are geared to changing levels of cost-driver activity rather than to the single level of the static budget. Organizations tailor their flexible budgets to particular levels of sales or cost-driver activity–before or after the fact. Flexible budgets tell how much revenue and expenses to expect for any level of activity. When considering static and flexible budgets, is there a difference between a static-budget variance and a flexible-budget variance? Support your response.
2. One of the key responsibilities of any organization is to manage budgets and costs to ensure a positive financial contribution to the business. However, there may be times that organizations may have to consider uncontrolled costs in materials, labor, etc. These uncontrolled costs, such as an unfavorable news report or an unexpected rise in gas costs, may have an impact on the variances they are seeing. It is how an organization reacts to the uncontrolled costs/disconnects in the process that can make a difference. In this case, instead of measuring organizational performance against the budget, a better measurement tool may be to look at how well the managers reacted or performed relative to other managers in the same environment. Class, what recent events have created uncontrolled costs for some companies and/or industries? Provide specific examples.
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