Provide an overview of flexible budgets, including their functionality, benefits, challenges, and practical applications in financial management, planning and decision-making. It aims to equip you with the knowledge to implement flexible budgeting effectively.

1. Understanding
Flexible Budgeting
LESLEY ANN A. ARCUINO
PHDEA 207- Budget Preparation and Fiscal Management
Saturday 12:30-4:30

2. Provide an overview of flexible budgets,
including their functionality, benefits,
challenges, and practical applications in
financial management, planning and decision-
making. It aims to equip you with the
knowledge to implement flexible budgeting
effectively.

3. Table of contents
- How Does a Flexible Budget Work?
- Key Features of Flexible Budgets
- Components of a Flexible Budget
- Benefits of Flexible Budgets for Managers
- Challenges of Flexible Budgets

4. A Flexible Budget is a budget that adjusts or flexes
with changes in the volume of activity. Unlike a
static budget, which remains fixed regardless of
changes in production or sales levels.
A flexible budget is designed to change in response
to actual operational activity. This makes it a
valuable tool for businesses to better manage and
understand their costs and revenues as conditions
change.

5. How Does a Flexible Budget Work?
A flexible budget adjusts with changes in the volume of
activity.
It differs from static budgets which remain fixed.
Allows businesses to manage costs and revenues
effectively based on actual activity.

6. Key Features of Flexible Budgets
1. Adjustability: Flexible budgets can be adjusted to reflect
actual levels of output or sales, providing a more accurate
financial picture.
2. Variable Costs: These budgets emphasize variable costs,
which change with the level of activity, in contrast to fixed costs,
which remain constant regardless of activity levels.
3. Performance Evaluation: By comparing actual results to the
flexible budget, management can gain a more accurate
assessment of performance.

7. Components of a Flexible Budget
1.Fixed Costs:
These are costs that do not change with the level of activity, such as rent,
salaries, and insurance. They remain constant regardless of production or sales
volume.
2.Variable Costs:
Costs that vary directly with the level of activity, such as raw materials, direct
labor, and sales commissions. These costs increase or decrease based on the
volume of output or sales.
3.Mixed Costs:
Some costs have both fixed and variable components, such as utilities, where
there is a base charge (fixed) plus a usage charge (variable).

8. Benefits of Flexible Budgets for Businesses
1.Accurate Cost Management: By aligning budgeted costs with actual
levels of activity, businesses can manage costs more accurately and make
more informed financial decisions.
2.Enhanced Planning: Flexible budgets allow businesses to prepare for
different scenarios, making it easier to adapt to changes in market
demand or production needs.
3.Improved Performance Evaluation: Comparing actual results with the
flexible budget helps identify areas of inefficiency and opportunities for
cost savings.

9. Benefits of Flexible Budgets for Managers
1.Better Decision Making: Managers can make better decisions
based on more accurate financial information, adjusting operations
as needed to stay within budget.
2.Increased Accountability: Flexible budgets hold managers
accountable for variable costs that they can control, leading to more
responsible spending and resource allocation.

10. Challenges of Flexible Budgets
Complexity
1.Detailed Data Requirement: Creating a flexible budget requires
detailed data on costs and how they vary with different levels of
activity.
2.Continuous Updating: Flexible budgets need to be regularly
updated to reflect changes in actual activity levels and costs, which
can be time-consuming.Requires detailed data and continuous
updates.

11. Challenges of Flexible Budgets
Implementation
1.Training and Understanding: Managers and staff need to
understand how to use and interpret flexible budgets, which may
require training and a change in mindset.
2.System Integration: Businesses may need to invest in new
software or systems to track and manage flexible budgets effectively.

12. Conclusion
Flexible budgets are essential tools for
businesses and managers, allowing for
adjustments based on actual activity, leading
to improved financial control and adaptability.
Despite the challenges in implementation, the
benefits are significant for enhancing
organizational efficiency.

13. Thank you!