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Dedicated Analytical Solutions FOSS Slangerupgade 69 3400 Hillerød Tel. com 45 Tools for Enterprise Performance Evaluation Budgeting and Decision Making 6. Flexible Budgets The previous chapter provided a comprehensive budget illustration using a static budget. The static budget is one which is developed for a single level of activity. It is very useful for planning and control purposes. However, you were also cautioned about the potential shortcomings of using static budgets for performance evaluation.

Or have you already graduated? P. Moller - Maersk. com 33 Budgeting: Planing for Success Budgeting and Decision Making 4. Budget Periods and Adjustments Budgets usually relate to specific future periods of time, such as an annual reporting year or a natural business cycle. For example, a car producer may release the 20X8 models in the middle of 20X7. In such a case, the budget cycle may be more logically geared to match the model year of the cars rather than the actual calendar year. There is nothing to suggest that budgets are only for one year intervals.

Standards are the predetermined expectation of the inputs necessary to achieve a unit of output. Standard costs provide an assessment of what those inputs should cost. Standards are important ingredients in planning and controlling a business. You have just seen how they influence the budget preparation process. They are also integral to the assumptions needed for proper cost-volume-profit analysis discussed in an earlier chapter. Standards can also be used in pricing goods and services. Perhaps you have had your car repaired; the bill is likely based on an hourly rate applied to a standard number of hours for the job (your specific repair might have actually taken more or less time).

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