Q. Show the Modern methods of budgeting?
A flexible budgeting system produces many budgets projecting costs and revenues over different ranges of production or sales volumes. Flexible budgets are also amended (flexed) if the actual level of activity turns out to be different from the budgeted level of activity. When a budget is flexed it would give an appropriate level of revenue and cost as a yardstick to compare on a like for like basis to actual results, meaningful variances or exceptions to the budget can then be highlighted for management attention.
Flexible budgeting recognises different cost behaviour patterns e.g. costs that rise or fall with the volume of sales or output produced, this is a better system for control purposes. Flexible budgeting is useful at the planning stage for 'what if?' analysis e.g. what if sales volume falls by 20%, what would be the effect on sales revenue, cost or contribution? What if" analysis looks at varying or changing the key variables to see how the outcome would change? These changes would be due to the revision of expectations, based upon the value of variables such as material cost or sales demand.