Capsul Tube
Thursday, February 17, 2011
Preparing a budget is an art. The formats of budgeting are neither predetermined nor rigid. They vary with the nature of data, size of transactions, and the person who develops the formats. However, whatever may be the type of format, it should be neat, clean, and self-explanatory.
Formula Approach Of Flexible Budget
This approach provides a formula for each expense account in each responsibility center. The formula gives the fixed amount and the variable rate, i.e., per unit rate. This approach is widely use in actual practice. Under this approach, a formula is used to express the straight-line relationship between total overhead costs and fixed amount and the variable rate to be multiplied by the output level i.e. labor hours, machine hours or units produced. Cost factors for flexible budgeting purposes can be developed as follows:
Budget Allowance = Total fixed Costs + (Unit variable costs x Units)
Symbolically, BA = FC + (UVC x Q)
Where, Q = Output level i.e. labor hours, machine hours or units produced
