What types of organizations use flexible budgets? Why? | Homework.Study.com (2024)

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What types of organizations use flexible budgets? Why? | Homework.Study.com? ›

Organizations such as restaurants, manufacturing firms and even hotels use flexible budgets because they react rapidly to keep the organization's business profitable. It enables these businesses or organizations to meet the evolving daily needs of the company's business operations.

Some types of businesses that benefit from a flexible budget include startups, restaurants, hotels, and seasonal businesses because they must all respond to rapid changes in their business to keep it profitable.

Overall, a flexible budget is suitable for businesses with variable or unpredictable expenses and those that need to adjust quickly to changes in the business environment in order to take advantage of the windows of opportunity.

Flexible budgets are widely used in production and service departments.

Allows for market variances

Using a flexible budget allows you to account for increased revenues, higher labor costs, and higher inventory costs during the busier months without having to adjust for months when business is slower.

Firms in the business-to- business service sector (e.g. legal, finance, marketing, media) are far more likely to offer flexible working than those in manufacturing and consumer-facing sector (e.g. retail and hospitality).

Most companies will start with a master budget, which is a projection for the overall company. Master budgets typically forecast the entire fiscal year. The master budget will include projections for items on the income statement, the balance sheet, and the cash flow statement.

Flexible budgets offer several advantages for business control, such as providing a more accurate and realistic measure of performance, allowing the business to identify and analyze variances between actual and budgeted results, and enabling the business to adjust operations and strategies in response to changing ...

If variable costs are significant, a Flexible Budget can help better manage and control these expenses. For businesses with predominantly fixed costs, a Master Budget might suffice.

In a flexible budget, variable costs adjust based on the actual level of activity, reflecting a more accurate representation of financial reality. Fixed costs: Fixed costs remain constant regardless of production or sales fluctuations. These costs include rent, insurance, and salaries.

What do organizations use budget for? ›

A budget allows a business to plan out expenses, reach business goals and anticipate operational changes. Without a budget, a business may experience overspending and underperformance, which could ultimately lead to the company's closure.

Fixed costs on a budget are costs that never change. Varying costs are costs that can change. An example of a flexible budget would be a business whose rent is always the same (a fixed cost) but whose inventory costs fluctuate (a varying cost) based on sales.

Static budgets are often used by non-profit, educational, and government organizations since they have been granted a specific amount of money to be allocated for a period.

Organizations such as restaurants, manufacturing firms and even hotels use flexible budgets because they react rapidly to keep the organization's business profitable. It enables these businesses or organizations to meet the evolving daily needs of the company's business operations.

In addition to enhanced productivity, offering flexibility in the workplace helps organizations retain their existing talent, boost morale, and attract new talent.

The flexible budget can be categorized into three different types. These include the basic flexible budget, intermediate flexible budget, and the advanced flexible budget. Businesses can opt to use one of these based on the need or goals of the company.

Organizations such as restaurants, manufacturing firms and even hotels use flexible budgets because they react rapidly to keep the organization's business profitable. It enables these businesses or organizations to meet the evolving daily needs of the company's business operations.

Flexible expense examples include a vacation and a meal out. Both are flexible expenses because they are nonessential expenses.

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.