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Standard Budgets versus Flexible Budgeting

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What's the weaknesses associated with standard budgets? How these issues haven been addressed through the flexible budgeting process?

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Solution Summary

Two paragraphs (223 words) explains the limitation of budgeting (static budgets) using an example of material costs. Then it explains how flexible budgets address this issue. Suitable for a novice.

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Budgets are created for a certain level of activity, such as selling 10,000 units. All the expenses, such as materials needed, labor hours, cost of supplies, and shipping costs are all based on the 10,000 items sold. For instance, materials may cost $3.00 per unit so you would budget for $30,000 in material costs. If you end up selling ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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