Flexible Budget Cash Budget
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(b) Flexible budget.
The Chartered Institute of Management Accountants, England, defines a flexible budget as a budget which, by recognizing the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover, or other variable factors such as no. of employees, is designed to change appropriately with such fluctuations. Thus, a flexible budget gives different budgeted costs for difference levels of activity. A flexlible budget is prepared after making an intelligent classification of all expenses between fixed, semi-variable and variable because the usefulness of such a budget depends upon the accuracy with which the expenses can be classified. Such a budget is prescribed in the following cases.
1. Where the level of activity during the year varies from period to period, either due to the seasonal nature of the industry or to variation in demand.
2. Where the business is a new one and it is difficult to foresee the demand...