What is the primary difference between static budget and a flexible budget?
What is the primary difference between static budget and a flexible budget?
What is the primary difference between a static budget and a flexible budget? -The static budget contains only fixed costs, while the flexible budget contains only variable costs. -The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
What is a static budget?
A static budget forecasts revenue and expenses over a specific period but remains unchanged even with changes in business activity.
What is a weakness of using a static budget?
One key disadvantage of a static budget is that it is not flexible and so it cannot be changed to take advantage of changes in revenue or expenses as the year proceeds. With a static budget, companies cannot manage the impact of changes, for example, by decreasing a portion of the budget in response to slow sales.
Why is a flexible budget better than a static budget?
The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace.
What are the advantages of flexible budget?
The biggest advantage to a flexible budget is that it more accurately reflects the state of your finances. The alternative, static budgeting, can’t account for unexpected expenses or changing income. A flexible budget will help you track where you can adjust spending each month.
What is a flexible budget?
A flexible budget adjusts to changes in actual revenue levels. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs.
What are three types of flexible expenses?
Flexible expense examples include groceries, dining out, entertainment, and even utilities.
How do you prepare a flexible budget?
The following are steps you can take to create a flexible budget for your business:
- Identify which costs are variable and which costs are fixed. Fixed costs typically include expenses such as rent and monthly marketing costs.
- Divide the budget.
- Create your budget with set fixed costs.
- Update the budget.
- Input and compare.
When should flexible budget be used?
For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount. In short, the flexible budget is a more useful tool when measuring a manager’s efficiency.
What are the features of flexible budget?
Main Features of Flexible Budget
- 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.
What is a flexible budget when is it prepared?
A flexible budget is prepared after making an intelligent classification of all expenses between fixed, semi-variables and variable because the usefulness of such a budget depends upon the accuracy with which the expenses can be classified.
What is fixed and flexible budget?
Fixed budget is inflexible and does not change with the actual volume of output achieved. Flexible budget can be suitably recasted quickly according to level of activity attained. Fixed budget assumes that conditions would remain static. Flexible budget is design to change according to changed conditions.
Which budget is normally prepared first?
Companies create a sales budget to determine how much revenue they expect to generate from their products and services. Because sales provides the top-line number in all operating budgets, after the master budget, the sales budget is the next budget companies usually prepare.
What is the difference between fixed and flexible?
Fixed exchange rate system is referred to as the exchange system where the exchange rate is fixed by the government or any monetary authority….Difference between Fixed and Flexible Exchange Rate.
| Fixed Rate | Flexible Exchange Rate |
|---|---|
| Fixed rate is determined by the central government | Flexible rate is determined by demand and supply forces |
| Impact on Currency | |
What is flexible exchange rate?
Flexible exchange rates can be defined as exchange rates determined by global supply and demand of currency. In other words, they are prices of foreign exchange determined by the market, that can rapidly change due to supply and demand, and are not pegged nor controlled by central banks.
What are the merits and demerits of fixed exchange rate?
Fixed Exchange Rate System: Merits and Demerits
- Exchange Rate Stability:
- Promotes Capital Movements:
- Prevents capital outflow:
- Prevents Speculation in foreign exchange market:
- Serves as an anchor against inflation:
- Promotes economic integration of the world:
- Promotes growth of internal money and capital markets:
Is fixed exchange rate good?
Fixed rates provide greater certainty for exporters and importers. Fixed rates also help the government maintain low inflation, which, in the long run, keep interest rates down and stimulates trade and investment.
Why is fixed exchange rate bad?
The downside, of course, is that countries with fixed exchange rates forfeit control of their monetary policy. That makes them more susceptible to financial shocks elsewhere in the world and can lead to more frequent and aggressive attacks by speculators.
What are the disadvantages of a fixed exchange rate?
The disadvantages of a fixed exchange rate include:
- Preventing adjustments for currencies that become under- or over-valued.
- Limiting the extent to which central banks can adjust interest rates for economic growth.
- Requiring a large pool of reserves to support the currency if it comes under pressure.
Who benefits from a fixed exchange rate?
A fixed exchange rate provides greater certainty and encourages firms to invest. 3. Keep inflation low. Governments who allow their exchange rate to devalue may cause inflationary pressures to occur.
Which countries use a floating exchange rate?
Free floating
- Australia (AUD)
- Canada (CAD)
- Chile (CLP)
- Japan (JPY)
- Mexico (MXN)
- Norway (NOK)
- Poland (PLN)
- Sweden (SEK)
Which country has fixed rate?
There are also four countries that maintain a fixed exchange rate, but for a basket of currencies rather than a single currency: Fiji, Kuwait, Morocco, and Libya. Loosely fixed currencies: These countries fix their currencies to a trading range tied to either a single or a basket of currencies.
How many countries are in the world?
195
Does China have a fixed exchange rate?
China’s central bank uses a modified version of a traditional fixed exchange rate that differs from the floating exchange rate the United States and many other countries use.
Which foreign exchange rate system is good for small countries?
A pegged rate, or fixed exchange rate, can keep a country’s exchange rate low, helping with exports. Conversely, pegged rates can sometimes lead to higher long-term inflation. Maintaining a pegged exchange rate usually requires a large amount of capital reserves.
Which exchange rate system is best?
Probably the best reason to adopt a floating exchange rate system is whenever a country has more faith in the ability of its own central bank to maintain prudent monetary policy than any other country’s ability. The key to success in both fixed and floating rates hinges on prudent monetary and fiscal policies.