Question

Explain the usefulness of a flexible budget in specific business cases. Give a real example of a flexible budget in an organization

Answer 1

For better understanding let’s take restaurant as an example of organization.

As we know that flexible budget is very useful for every type of organization whether it is manufacturing organization, service organization, trading organization. Hence it is also very useful for restaurant organization.

Let’s know the usefulness of flexible budget;

1. It provides more reliable possible data at various level of activities such as at 500 customers level, at 1000 customers level and at 5000 customers level etc.

2. It helps in more accurate assessment of managerial and organizational performance.

3. It helps in controlling various deviation at various level of activities.

4. Management can easily judge possible costs at various level of activities.

5. An organization can easily adjust its’ cost and revenues as per the actual level because under flexible budget we have various possible activity level.

6. Flexible budget provide better flexible structure of costs and revenues so that an organization can easily meet actual data etc.