QS Study

Main Features of Flexible Budget

A budget may be defined as a quantitative expression of a business plan for a specified future period, usually a year. It is simply a financial forecast for a future period. A flexible budget is a dynamic budget. It is a budget which is designed to change in accordance with the level of activity. It is a budget that adjusts or flexes for changes in the volume of activity.

The Flexible budget is designed to change in accordance with the level of activity attained. Thus, when a budget is prepared in such a manner that the budgeted cost for any level of activity is as available, it is termed as a flexible budget. Such a budget is prepared after considering fixed and variable elements of cost and the changes that may be expected for each item at various levels of operations.

The important characteristics of the flexible budget can be pointed as follows:

  • The flexible budget covers a range of activities,
  • A flexible budget is easy to change according to variations of production and sales levels.
  • Flexible budget facilitates performance measurement and evaluation.
  • It takes into account the changes in the volume of activity.
  • Flexible budget replaces a static budget for control.