Flexible Budget Research

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Introduction

A budget is considered as a standard to facilitate control work activities of the organization. Budgets are planning tools prepared firstly to start the period being budgeted. Valuable information about the performance contains of the difference between the actual results and the planning budgets. Therefore, budgets are both planning tools and performance evaluation.

The most common important element in budget is some measure of anticipated output such as the number of units to be produce, the number of units to be sold, the cost of good sold_direct material, direct labor, overhead cost,.. need in production, selling and administrative expenses,….

The flexible budget is a performance evaluation tool
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3. Determine the actual volume of output achieved. 4. Before a flexible budget can be produced, managers must identify fixed costs and variable costs. - "Fixed costs" are costs which will not increase or decrease over a given range of activity. - "Variable costs" are costs which will increase or decrease over a given range of activity.
Management have identified that the following budgeted costs are fixed:
Direct labor = $8,400
Overheads = $53,000
Identifying the expected variable cost per unit produced and sold:
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Now that managers are aware of the fixed costs and the variable costs per unit it is possible to ‘flex’ the original budget to produce a budget cost allowance for 1,000 units produced and sold. For the costs which are wholly fixed or wholly variable the calculation of the budget cost allowance is fairly straightforward. The remaining costs are semi-variable, which means that they are partly fixed and partly variable. Setting the flexible budget:

| |Variable cost/unit |Level 1 |Level 2 |
|Units of production | |1,000 |1,200 |
|Variable cost: | | | |
|_direct

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