What is componets of flexiable budget?

Answer 1

A flexible budget, or "flex" budget, incorporates different expense levels into the budget, depending upon changes in the amount of actual revenue generated. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels.

In its simplest form, the flex budget uses percentages of revenue for certain expenses, rather than the usual fixed numbers. This allows for an infinite series of changes in budgeted expenses that are directly tied to actual revenue incurred. However, this approach ignores changes to other costs that do not change in accordance with small revenue variations. Consequently, a more sophisticated format will also incorporate changes to many additional expenses when certain larger revenue changes occur, thereby accounting for step costs. By incorporating these changes into the budget, a company will have a tool for comparing actual to budgeted performance at many levels of activity.