Question

What are the reasons to use a flexible budget? What is the major distinction between a static budget and a flexible budget? Illustrate the difference using a real-world example.

Answer 1

answer:

• Give us a chance to begin with what is static and adaptable spending plan. Any financial plan is readied dependent on specific appraisals and suspicions produced using past experience with respect to movement for which spending plan is made.
• A static spending plan is one in which a solitary level of action or volume is evaluated and every single other factor, for example, income and expenses are assessed at that volume.
• Though an adaptable spending plan does not settle certain volume or movement. What it gauges is rate of income/cost per unit of volume for a scope of volume.
• 'Adaptability' of this sort of spending originates from this fundamental distinction, as a rate of income or cost can be connected to any level of volume or movement.
• In pragmatic world volume/action may shift contingent upon outer elements. Adaptable spending plan is more refined than static as it permits to suit down to earth circumstances.
• This aides in planning variable expenses or income all the more effectively as these are specifically identified with volume.
• Lets see a little precedent, a maker of bike has coordinate material expense $100 per bike. A static spending plan may appraise creation of 50 units in multi month while an adaptable spending gauges generation to be 40-60 units.
• On the off chance that amid multi month because of work issues real creation was 44 units at exactly that point real material cost chared would be $4400 against a bugeyed cost of $5000 under static spending plan (50 units planned).
• Though adaptable spending will demonstrate planned expense of $4400 just as it accept a scope of 40-60 units of creation.
• This distinction will influence every single variable component of the financial plan yet not settled expenses.