Content<\/p>\n

Flexible Budgeting:<\/a><\/li>\n
Top 5 Budgeting Questions Answered<\/a><\/li>\n
Flexible Budget Variance<\/a><\/li>\n
Capital Budget<\/a><\/li>\n<\/ul>\n<\/div>\n
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The result is a budget that is fairly closely aligned with actual results. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels. The original budget for selling expenses included variable and fixed expenses. To determine the flexible budget amount, the two variable costs need to be updated.<\/p>\n
Who the payer is in that scenario will affect how much of a hit the hospital takes. The major payers-Medicare, Medicaid and private insurers-all will reimburse for varying amounts of that difference. And such device cost overruns are not uncommon at hospitals. From unexpected clinical equipment needs to mysterious shifts in care reimbursement revenue, the ways in which a hospital or health system budget can go awry are numerous.<\/p>\n
Put these values in the format to create a flexible budget. You need to determine the following for preparing a flexible budget. Of course, adopting a flex budget methodology sounds great on paper as the most logical step toward improved budgeting, but it requires a cultural change when being implemented. Hospital managers likely will need to be guided through the process as they are required to adopt a new mindset in setting and using a budget. Another mistake hospital and healthcare executives make in budget preparation is not reworking budget assumptions each year. A flex budget, while much more complicated than a traditional fixed budget, makes managing hospital finances easier over the course of the year, McGuire says.<\/p>\n
Most consumers know what they should do if they need to keep their expenses down. But it can be helpful to list all of one’s flexible and inflexible expenses in order to really understand where all the money is going. The contemporary consumer seems to be faced with an extraordinary range of goods and services that are available at prices from discount to super-premium. A consumer can buy a leather handbag for $20 at a warehouse store or spend $40,000 to $50,000 on a single Hermes Birkin bag. Somewhere in between probably works for the budgets of most people.<\/p>\n
When preparing budget reports, it is important to include in the report the items the manager can control. If a manager is only responsible for a department’s costs, to include all the manufacturing costs or net income for the company would not result in a fair evaluation of the manager’s performance. If, however, the manager is the Chief Executive Officer, the entire income statement should be used in evaluating performance. On the other hand, flexible budgeting is very much adjustable to the situations of business. That\u2019s it\u2019s prudence to use flexible budgeting no matter what scale of business you\u2019re in. While preparing any budget at all is always better than not having one, a static budget does not prepare you for revenue and expense changes in real time. Using a flexible budget will immediately alert you to any changes that are likely to impact your bottom line, allowing you to make changes proactively instead of reactively.<\/p>\n
Flexible Budgeting:<\/h2>\n
Ideally you would like this section to account for less than half of your take home pay. A flexible budget requires more attention than a fixed one, but in the long run will be worth it. With a flexible budget you can shift your spending around in case of a fender bender or have a little more fun with some extra cash. More importantly, your spending will not be the same from one month to the next.<\/p>\n
If so, one can integrate these other activity measures into the flexible budget model. Now let’s illustrate the flexible budget by using different levels of volume. If 5,000 machine hours were necessary for the month of January, the flexible budget for January will be $90,000 ($40,000 fixed + $10 x 5,000 MH). If the machine hours in February are 6,300 hours, then the flexible budget for February will be $103,000 ($40,000 fixed + $10 x 6,300 MH).<\/p>\n
$\"flexible$ <\/p>\n
Even if a fixed budget is elementary to prepare, ideally, it\u2019s not an excellent method of budgeting to be precise; because fixed budgeting doesn\u2019t leave room for fluctuations. A fixed budget flexible budgeting example<\/a> isn\u2019t advantageous to medium and large enterprises but only suitable for micro-organizations. A flexible budget is suitable for all kinds of organizations \u2013 from micro to large.<\/p>\n
To create these budgets, the company first must identify fixed costs, such as mortgage payments, and variable costs, such as supplies and advertising. The activities that could cause flexible budgets to flex might be the amount of sales, units of output, machine hours, miles traveled, etc.<\/p>\n
Top 5 Budgeting Questions Answered<\/h2>\n
A flexible budget is a budget that adjusts to the activity or volume levels of a company. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously “flexes” with a business’s variations in costs.<\/p>\n
$\"flexible$ <\/p>\n
Cost Ascertainment is also not possible in case of fixed budget if the actual and budgeted levels of activity vary and the same can be easily determined in the case of a flexible budget. Thus, a flexible budget might be developed that would apply to a \u201crelevant range\u201d of production, say 8,000 units to 12,000 units. The flexible budget provides a reliable basis for comparison because it is automatically geared to changes in a production activity. Flexible budget, on the other hand, is a budget that is flexible as per the needs of the hour.<\/p>\n
At the end of the accounting period, Company B determines that it actually had sales that equaled $6 million, which is $1 million more anticipated. There are several accounting tools that businesses can use to plan for and track their monetary activity. One tool that many companies find helpful is the flexible budget. This type of budgeting changes with a company’s level of activity or volume and is especially useful for businesses that see a lot of variations in cost-related activities throughout the year. A flexible budget is estimated with regards to the cost of production, sales, expenditure, etc. The actual figures may vary from the values initially calculated due to several factors.<\/p>\n
Next, separate your spending categories by the things you can change and the things you can’t. But it’s worthwhile, and the best place to start is with flexibility.<\/p>\n
Once you have created your flexible budget, at the end of the accounting period you will want to compare the flexible budget totals against actuals. This comparison allows you to make any future adjustments based on the flexible budget variance indicated in the comparison.<\/p>\n
Flexible Budget Variance<\/h2>\n
A flexible budget enables companies to have a more realistic idea of their budgets based on changing costs and profit margins. An intermediate flexible budget takes into account expenses that go beyond a company’s revenue. Typically, this budget includes costs that are related to activity in addition to or rather than revenue. For example, a business’s insurance policy costs may vary based on how many employees the company has and may increase if the company hires new employees. For instance, if a business’s static budget predicted $2.48 million in sales during one quarter, and the company sold $2.52 million, the flexible budget would record the latter.<\/p>\n
Flexible budget reckons operational realities and streamlines control function and profit planning. When flexible budget is prepared, actual cost at actual activity is compared with budgeted cost at actual bookkeeping<\/a> activity i.e., two things to a like basis. Jake is now working on a flexible budget for his sales department! His supervisor gave him to green light to keep selling and keep paying his sales people!<\/p>\n
Management<\/h2>\n
Hence, any error in books of accounts can mislead the budget preparation. It is because the base of the budget starts from the past performance of the company. Fixed cost, for example, rent, insurance premium, etc. remains the same every month, irrespective of Certified Public Accountant<\/a> the actual machine hour used. It sets the standard to measure the variances of the budget estimates and the actual performance of the company for control purposes. Variance Analysis provides useful information as each cost is analyzed according to its nature.<\/p>\n
An alternative is to run a high-level flex budget as a pilot test to see how useful the concept is, and then expand the model as necessary. Many costs are not fully variable, instead having a fixed cost component that must be derived and then included in the flex budget formula. Budget reports can be a useful tool for evaluating a manager’s effectiveness only if they contain the appropriate information.<\/p>\n
- In the above example, a fixed budget would produce a $3,000 cost overrun in each case where the cost was higher-and the accompanying budgetary hit-when in fact, the outcome will vary depending on the payer.<\/li>\n<\/ul>\n
  It can be due to an increase or decrease in production that may impact sales figures and any expenditure or income associated with it, or a change in values of other cost centers. Also, there may be intangible factors in play, such as the implementation of better technology or an increase in the efficiency of the workers that may affect budgeted numbers. Flexible Budget can be understood as the budget created for different production levels or capacity utilization, i.e. it changes in accordance with the activity level. While fixed budget operates in only production level and under only one set of condition, flexible budget comprises of several budgets and works in different conditions. The flexible budgeting technique incorporates changes in activity level and compares actual results with the budget in terms of output achieved. This facilitates more meaningful comparison and evaluation between actual and budgeted data as comparable data are compared.<\/p>\n
  This is particularly important when you’re hoping to build savings or work towards a larger financial goal. When you must adjust your spending on an ad hoc basis, most often you end up short-changing your savings. A flexible budget is about more than just making sure you don’t go into the red in any given month. It’s about making sure you adjust your spending based on what’s important to you. For example, perhaps you want to dedicate a specific amount to savings each month or are focused on ramping up your IRA. These will be the priorities that you fix your budget around.<\/p>\n
  Labor costs don’t always get the attention they deserve in the budgeting process, even though they’re typically a hospital’s single highest expense, Berger says. The best way to get a handle on those costs is to track the amount spent on labor relative to operating revenue, he says. The labor ratio is “the most important financial operating indicator in hospitals today,” he says. Many other variables in addition to patient volume can be plugged into a flex budget to make it more useful. “A flexible budget automatically calculates what your expenses should have been given the volume you had,” Krentz says. A flex budget automatically takes into account such changes in volume and all of their consequences. That allows the budget to remain a useful tool for tracking revenue and expenses, he says.<\/p>\n
  As he works on his budget, he notices that even though increased sales cause increases in some of the expenses in his department, others, such as rent, stay the same. This makes Jake really happy, as the net profit for his department is rising along with the increase in sales! Let\u2019s take a look at how a flexible budget can help businesses grow, and offer a better picture of where budgeted expenses should be. Because the master budget as prepared was a static budget, it can\u2019t be adjusted later for increases or decreases in sales numbers. This is a huge problem, since additional sales is typically a good thing.<\/p>\n
  What you’re looking to do is account for any unanticipated expenses that came up in the previous month, and to do so in a way that preserves your financial priorities. Flexible budgeting allows you to adjust your savings and spending based on how you actually live your life, not based on a hypothetical sketch of how you should live it. Variable costs are usually shown in thebudgetas either a percentage of total revenue or a constant rate per unit produced. Multiply the cost per unit by the number of units in each level. Only then is it possible to issue financial statements containing budget versus actual information, with the variations between the two.<\/p>\n
  Flexible budgeting results in coordination between all activities\/departments of a business. Production is planned in relation to expected sales; materials and labour are acquired to meet expected production requirements. Facilities are provided to achieve budgetary goals, and funds are made available for the investments necessary to have higher output. Selecting the activity levels to prepare budgets at those levels. The flex\u00adibility involved in this budget makes a very useful decision-making tool for management. It is flexible, i.e., easy to change with variation in production levels.<\/p>\n
  Author: Maggie Kate Fitzgerald<\/a><\/p>\n
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