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C HAP TE R 1 5 Flexible budgets, variances and management control I Teaching tips and points to stress Static-budget variances Companies prepare flexible budgets (FBs) for two reasons. The first is
ex ante planning. An FB is a highly summarised
model of revenues and costs, so it facilitates planning-oriented sensitivity analyses that predict costs (e.g. Exhibit 15.2). FBs are also prepared
ex post to facilitate control. Here, the FB is prepared at the end of the period to estimate what costs and revenues should have been at the output (or revenue/cost driver) level. The FB developed for control purposes provides a benchmark against which
to compare actual results, as in Exhibit
15.3.
In this case, the FB cannot be prepared until the end of the period because the actual output levels (or revenue/cost driver levels) are not known until the end of the period. In sum, the FB can be used as either a planning tool or a control tool.
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