ACC 350 Week 9 Discussion

Hello Professor Asher and classmates,

A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during management's planning process. A static budget, on the other hand, remains the same even if there are significant changes from the assumptions made during planning. The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can't account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month. Unlike a static budget, a flexible budget changes or fluctuates with changes in sales, production volumes, or business activity. A flexible budget might be used, for example, if additional raw materials are needed as production volumes increase due to seasonality in sales. Also, temporary staff or additional employees needed for overtime during busy times are best budgeted using a flexible budget versus a static one. For example, let's say a company had a static budget for sales commissions whereby the company's management allocated $50,000 to pay the sales staff a commission. Regardless of the total sales volume–whether it was $100,000 or $1,000,000–the commissions per employee would be divided by the $50,000 static-budget amount. However, a flexible budget allows managers to assign a percentage of sales in calculating the sales commissions. The management might assign a 7% commission for the total sales volume generated. Although with the flexible budget, costs would rise as sales commissions increased, so too would revenue from the additional sales generated. Source: https://smallbusiness.chron.com/would-company-flexible-budget-variance-informative- 34699.html