AIU Budget Types Static vs Flexible Discussion

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Various types of budgets facilitate understanding about the big picture of a business. There are budgets that are set and unchangeable, as well as budgets that allow for variability.

• Explain 2 different types of budgets and discuss how they complement each other.
• What is the difference between a flexible budget and a static budget? Which one do you believe works better for a business you have worked for or about which you are familiar?

In your replies to others, share your knowledge and experiences with a specific type of budget. Include whether the budget was flexible or static.

Latonya Hill

The two types of budgets I will be discussing are the project budget and the capital budget. The project budget is often broken down and divided into specific tasks. The capital budget is the plan for such projects and will impact the financial performance of the organization. The difference in static budget and flexible budget is the static budget is prepared for a single activity and the flexible budget is for different activity levels. A flexible budget is allowed to adjust based on a change in the assumptions to create the budget. A static budget remains the same even if there are significant changes from assumptions while planning. I think the flexible budget would be good for a business the business would be able to attract and retain a skilled and more diverse workforce. It would have a better staff morale and more job satisfaction. The benefits of having a flexible budget would be improved retention, cost efficiency, increased flexibility for customers, and increased productivity levels. 

Sandra Linton

Budgets are extremely important to businesses, by showing a company information needed for staying on top of finances and any changes that are needed. Business cannot run or continue to stay up and running without a budget. But a business must choose which budgets to use within their company that will show all the benefits, such as unexpected expenses, how much capital is available and to anticipate revenues to stay in business. There are many different budgets but a business needs a master budget and a cost budget to meet the company goals. The master budget includes a lower-level budget and covers a year and assists the company in their spending and the company profits. The cash budget shows a business the cash flow in and the cash flow out over a weekly, monthly or quarterly. The master budget and the cash budget is a great way to see if the budget is working for the company, with the cash budget being used whenever needed (even weekly). The master budget (static budget) is the overall budget that shows the revenues and variables on a yearly basis.

The differences between a static budget (master budget) is that the static budget shows the company all revenues and expenses, cost and profits. A flexible budget can increase or decrease within the company sales as well as the production of a company, and can be used to show problems, sales or cost of products. I believe the flexible budget worked with JoJo Biscuits, because it was a restaurant and they ran out of supplies every month. One month the flour, next month it could be sausages, the manager had to go and buy what was needed. I think their problem was 2 owners, one wanted to order everything and the other one wanted to go cheap. But they went from a 6 day a week restaurant to a 3 day restaurant that closes at noon.