Purposes of Flexible Budget for Managers

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author’s Note

1MANAGEMENT ACCOUNTING
Table of Contents
Purposes of Flexible Budget for Managers................................................................................2
Variances....................................................................................................................................2
Price Variance........................................................................................................................2
Quantity Variance..................................................................................................................3
Purpose of Standard Cost...........................................................................................................3
Importance of these Information in Managerial Decision-Making............................................4
References..................................................................................................................................5

2MANAGEMENT ACCOUNTING
Purposes of Flexible Budget for Managers
The presence of certain purpose can be seen for which the organizational managers
use Flexible Budgets. These purposes are discussed below:
 Managers use flexible budget for the purpose of performance measurement. Flexible
budget rearranges itself based on the levels of activities and thus, it works as an
effective tool to evaluate the performance of the companies. In addition, the managers
use this as a planning tool where they use it for demonstrating the likely financial
results at a variety of different levels of activity (Kaplan & Atkinson, 2015).
 Managers use the flexible budgets for the purpose to easily update the budgets for
which the figures of revenue and others activities have not been finalized. Under the
process of flexible budgeting, managers approve all the fixed and variable expenses as
per the proportion of revenue and other activities. Then the responsible personnel
complete the remainder of budget that flows through the flexible budget formula so
that the expenditure levels can be altered automatically.
 Managers use the flexible budgets for reacting more quickly in the adverse conditions.
For this reason, it can adjust to the decline of revenue along with keeping the labour
costs at the original level (Kaplan & Atkinson, 2015).
Variances
Price Variance
Price Variance is considered as the original unit cost of a purchased item, minus its
standard cost, multiplied by quantity of actual units purchased. The formula can be seen in
below:
Price Variance = (Actual Incurred Cost – Standard Cost) x Actual Quality of Purchased Units