I have explained what is Static Budget in my earlier post. Other that alternatively there is a Flexible Budget.
Flexible budget is the opposite of Static Budget. It is changed each time it is prepared. It basically takes in the actual performance of the company for time lapsed and adjust the forecasted budgeted numbers in accordingly. This makes Flexible Budget a more realistic budget than any other budgets.
Many companies also add in the actual versus variance analysis in the Flexible Budget. These analysis formed a basis for the companies to forecast result for the coming financial year end. Its formats and presentations are very similar to the Master Budget. But the volume of details may be much lesser.
Flexible Budget is a very useful management tool. It helps the companies to evaluate its current performance against the Master Budget. If they are falling behind, quick actions and new strategies could be implement to ensure that they still achieved their targets when the financial year ended.
If the companies’ performances are ahead of the Master Budget, they can expect a better than expected results when the financial year ended. Usually this would mean good bonuses or increments are waiting in line for them.
