Flexible Budgets

Overview

Description

Companies try to predict their sales and revenues to make sure their actions lead to good business decisions. After a sales period, companies usually perform a variance analysis. This determines the accuracy of their predictions by comparing predicted costs to actual costs. As a result, companies identify their cost drivers and make the necessary changes to their budget. Multiple cost drivers can be responsible for a single variance. Companies use a flexible budget to figure out where the budget needs to change. Flexible budgets are a way for companies to adjust their cost drivers to increase profitability.

At A Glance