Presentation (2).pptx

ECONOMICS PPT

1. FIXED AND FLEXIBLE BUDGETING

2. On the basis of flexibility the budget may be classified into two categories namely Fixed or Static Budget Flexible Budget

3. Fixed or Static Budget According to ICWA, London- “Fixed Budget is a budget which is designed to remain unchanged irrespective of the level of activity actually attained”.      The budget in which the objectives and targets are fixed is known as fixed or static budget.   Prepared when?   It is prepared after a long discussion before the beginning of the year.  

4.  In fixed budget preparation the essential conditions are Business nature is not seasonal No effect of external factors on business conditions. Product demand is certain and fixed R egular issue of supply orders R egular supply of inputs Price stability trend is there

5. Characteristics of a Fixed Budget Targets achievement is a must, as instructions issued by the management authorities Fixed aim/objectives/targets of the business firm/unit. It is prepared in normal conditions of business. It assumes that other factors will remain constant in future.

6. Merits-  i . Time saving   ii. Easy to prepare   iii. Easy to control  iv. Easy to forecast about production and sales. V .more accurately Demerits- - i . Based on wrong assumption of other things remaining the same  ii. Change is not possible  iii. In accurate estimates and data  iv. Other factors have great impacts on sales & production activity

7. according  to ICWA London, “Flexible budget is a budget which, by recognizing the difference between fixed, semi- variable, and variable costs, is designed to change in relation to the level of activity attained”.  Flexible budget is the budget in which adjustment is possible according to change in business conditions. Flexible budget is prepared for various capacity/activity levels of production i.e. from minimum to maximum level like- 10%, 20%, 30%, 40%, ………… 100% Flexible budget

8. Flexible Budget Characteristics A Flexible budget consists of a series of budgets prepared in respect of different levels of activity during a budget period.   It can be changed and adjusted as per the changes in the business conditions.     Prepared in advance     Prepared for various levels of activity Its nature is dynamic     Concerned with a particular period of time     Production possible at all levels of productions.     Easy to control unfavorable effects of the changes Click to add text Click to add text Click to add text Click to add text

9. Flexible Budget: Advantages/Importance/Merits/Benefits   E asy to calculate sales, cost, profits at various levels of production capacity.  Helps in comparison of actual figure with the budget figures.  Help in cost control by finding the variances in actual figures and budget figures. Steps may be taken to minimum the variance. In flexible budget, adjustment is very simple according to change in business conditions .  It is very easy to know the effects of cost factors on business profits. It helps in determination of production level. It is prepared to free from the disadvantages of fixed budget. Know the impact of external environmental factors on the activities of business.

10. Demerits T ime consuming, requires more maintenance and oversight L imits ability to plan in some areas when budget is changing L ess Discipline E nables cheating

11. Diff erence between fixed and fexible buget Basis for comparison Fixed budget Flexible budget Meaning A fixed budget is a budget that remains static irrespective of the activity level. A flexible budget is a budget that changes as per the necessity of activity level. Whats its all about? The fixed budget doesn’t change as per the fluctuations of business. Flexible budget changes as per the fluctuations of business.

12. Nature A fixed budget is always static. A flexible budget is very dynamic. Simplicity Pretty simple Quite complex Ease of preparation It is easy to prepare a fixed budget. It is quite tough to prepare a flexible budget since one needs to prepare for all situations. Consequences The dissonance between the actual level and the budgeted level is quite high since there is no similarity in activity level. The dissonance between the actual level and the budgeted level is quite low.

13. Comparison Comparison is difficult since the activity levels are different at the actual level and budgeted level. Comparison is quite easy since the activity levels are quite similar. Rigidity Pretty rigid, no fluctuation is taken into account. Quite flexible, almost every fluctuation is taken into account. How is it estimated? A fixed budget is mostly estimated on assumptions and anticipations. A flexible budget is prepared with realistic situations in mind.

14. Conclusion By comparing the fixed budget and flexible budget, we get an idea about which one is more useful and more applicable. Even if a fixed budget is elementary to prepare, ideally, it’s not an excellent method of budgeting to be precise; because fixed budgeting doesn’t leave room for fluctuations. On the other hand, flexible budgeting is very much adjustable to the situations of business. As a result, the business doesn’t need to incur losses. That’s it’s prudence to use flexible budgeting no matter what scale of business you’re in

15. Thankyou Presented by Saavi Goel Mehak Nangia