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BUS 5110 Week 6 Discussion

Flexible budgets change in accordance with activity levels and recognize that costs vary with output. They help businesses plan for changes in production costs or sales volumes to maximize profits. Flexible budgets are also used as a performance evaluation tool to allow for accurate comparisons between budgeted and actual performance. A variable cost is an amount per unit that changes proportionally with the volume produced, such as direct materials. Standard costing substitutes expected costs for actual costs, recording variances between the two. It provides a simplified alternative to inventory costing methods by using estimated standard costs. Key business performance drivers like sales, costs, and working capital should be measured against budgets and forecasts to spot cash flow or profitability problems early through consistent calculation

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81 views1 page

BUS 5110 Week 6 Discussion

Flexible budgets change in accordance with activity levels and recognize that costs vary with output. They help businesses plan for changes in production costs or sales volumes to maximize profits. Flexible budgets are also used as a performance evaluation tool to allow for accurate comparisons between budgeted and actual performance. A variable cost is an amount per unit that changes proportionally with the volume produced, such as direct materials. Standard costing substitutes expected costs for actual costs, recording variances between the two. It provides a simplified alternative to inventory costing methods by using estimated standard costs. Key business performance drivers like sales, costs, and working capital should be measured against budgets and forecasts to spot cash flow or profitability problems early through consistent calculation

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BUS 5110 – Discussion Assignment Unit 6

 Flexible budgets are also known as variable or dynamic budgets, and change in accordance
with the level of activity during the budgeted period. Flexible budgets recognize the relativity
of fixed and variable costs to fluctuations in output or turnover and make provisions for
changing line values depending on changes in output or turnover. Flexible budgets are used
to help plan for potential changes in production costs or sales volumes, allowing a business to
respond to changes and, thereby, maximize profits. Flexible budgets are used as a
performance evaluation tool aimed at allowing for a correct comparison between budgeted
performance and actual performance. (Nayab, 2018)
4. A variable cost is a constant amount per unit produced or used. This means the total
variable cost will change proportionately with the volume produced. The variable cost of
production is a constant amount per unit produced. Direct materials of a product are a
variable cost. For example, a bakery uses one pound of flour at the cost of 70c per pound for
every loaf of bread it produces. If they produce no bread, the total cost of flour is $0. If they
produce one loaf, the total cost of flour is 70c. When they produce ten loaves, the total cost of
flour is $7 and so forth. ()
7. When substituting an expected cost for an actual cost in an accounting period, it is called
standard costing. As a result of substituting costs, a variance is recorded to show the
difference between the expected and actual costs. This is a simplified approach alternative to
cost layering systems, where large amounts of historical cost information must be maintained
for inventory items held in stock, such as the FIFO and LIFO methods. Creating estimated /
standard costs for some or even all activities within a company is achieved by standard
costing. Time constraints make collecting actual costs difficult, so standard costs are used as
a close guideline to actual costs. (Bragg, 2019)
Cost accountants periodically calculate and may even change the standard costs to bring it
closer to actual costs, variances that break out the differences caused by labor rate changes
and cost of materials, due to standard costing’s difference from actual costs. (Bragg, 2019)

Understanding and monitoring of key drivers of a business are crucial in measuring the
performance of the business. A key driver is something that can have a major impact on the
business. There are many factors influencing a business’ performance, but the following three
are used in most businesses:
· sales
· costs
· working capital
Trends in cashflow problems or falling profitability will show up in the above figures when
measured against budgets and forecasts. Problems can be spotted early on if they are
calculated on a consistent basis. (Migrator 2018)
Nayab. “What Is a Flexible Budget? An Overview.” Bright Hub, 18 Nov.
2018, www.brighthub.com/office/finance/articles/88382.aspx.
“What Is a Variable Cost?: AccountingCoach.”
AccountingCoach.com, www.accountingcoach.com/blog/what-is-a-variable-cost.
Bragg, Steven. “Standard Costing.” AccountingTools, AccountingTools, 5 Jan.
2019, www.accountingtools.com/articles/2017/5/14/standard-costing.
Migrator. “Using Your Budget to Measure Business Performance.” Nibusinessinfo.co.uk, 26
Sept. 2018, www.nibusinessinfo.co.uk/content/using-your-budget-measure-business-
performance.

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