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Top down, bottom up, flexible budgets, varianaces

Discuss budgeting techniques. Is a top down or bottom up approach preferred and why? What is a flexible budget versus a static budget? What is a spending variance and a activity variance? Are variances necessarily bad

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Budgeting techniques are typically based on a practical approach or ideal approach (what we think we will normally do or what we would like to be able to do). Usually a budget is developed by first deciding what the level of activity is going to be (sales and then production and supporting departments).

Top down helps because it tells you what the leadership will support and approve. But it has trouble getting buy-in from the front line folks and often is missing details that are only known by the front line folks. Bottom up is ...

Solution Summary

This discussion is in everyday language suitable for novice to intermediate. It is a pragmatic discussion about the pros and cons of the leaders directing the budget or the workers directing the budget. Examples are given.