XYZ Co. is preparing a budget for 2018. The budgeted selling price per unit is 6
ID: 2591086 • Letter: X
Question
XYZ Co. is preparing a budget for 2018. The budgeted selling price per unit is 60 SR, and total fixed costs for 2018 are estimated to be 1,500,000 SR. Variable costs are budgeted at 20 SR/unit.
You are working in accounting department of XYZ, prepare a flexible budget for the volume levels 120,000, 130,000, and 140,000 units.
One internship student having his training in XYZ Co requested you to explain to him the difference between static and flexible budgets and arguments of using each one of them?
please send coreect answer no ohoto no handwriting
Explanation / Answer
XYZ Accounting Department Flexible Budget Units 120000 130000 140000 Sales (60 SR Per Unit) 7,200,000 7,800,000 8,400,000 Less : Variable Cost (20 SR per unit) 2,400,000 2,600,000 2,800,000 Contribution Margin 4,800,000 5,200,000 5,600,000 Less : Fixed Cost 1,500,000 1,500,000 1,500,000 Net Operating Income 3,300,000 3,700,000 4,100,000 Static Budget Vs Flexible Budget A budget that never changes is called static, while a budget that changes based on actual activity is called flexible. A static budget is planned ahead of time based upon the guess about the future actual activity.It works best when there is reasonable amount of certainty what revenues and costs will be except there is an extraordinary circumstances. Flexbile Budgeting is a sophisticated method because we can make changes in the budget in the middle of the reporting period. This budgeting require knowing in advance which costs are fixed or flexible and how expenses are affected by changes in revenue. As the flexible budget changes based upon volume , it provides greater level of control.
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