Flexible Bu Characteristics of a Flexible Budget Prepare a flexible badget The budgets that we planning budget is in the last chapter were planning budgets. A planning bedget is prepared before the period begins and is valid for only the planned level of activity, A static sua le for planning b' s inappropriate for evaluating how well costs are controlled if the actual level of activity differs from what was planned, would be misleading compare actual costs to the static, unchanged planming budget. If activity is higher than expected, variable costs should be higher than expectod and if activity is lower than expected, Flexible budgets take into account how changes in activity affect costs. A flexible bedget to variable costs should be lower than expected is an estimate of what revenues and costs should have been, gliven the actual level of activity for the actual level of activity during che period rather for the period. When a flexible badget is used in performance evaluation, actal costs are compared to what the costs should hrve been than to the statie planning budget. actual costs. This is a very important distinction. If adjustments for the level of activity are not made, it is very difficult to interpret discrepancies betwoen budgeted and IN BUSINESS WINNERS AND LOSERS FROM THE NRA LOCKou e uoserolable teuoes For example, when the Nasional Buikethall Assocision (NBA) dacided to susgerd pley becaae A company's actual net operating income can deviate of a dspute betweem its team owners and players, many small businesses expe i from the budget for numerous and often when the National drop in sevenues. BestSportsApparel.com i suffered-eaterers, sports bars, apparel retailers, and parking lot owners all experienced a redaced the size of its woekforce eriencod a substantial drop in NBA apparel sales due to the work stoppage. Rather than hiing 12 extra amplayees for the NBA weason, the company While some companies lost revenues when the NBA shut down others benefited from the siation Andrew Zimbalist professor of economics at Smith College, notes that "local economies are not impacted by dollars at other venues such the theater, the zoo, or de muse sperts work stoppages" because people choose to spend their entertainment Sarah E. Neodlemas, "NBA Lockoat: Local Fis Lose Big" The Wall Sreet Jonal, Otr 13, 2011.p. B Deficiencies of the Static Planning Budget nd planning budget and a flexible budget, consider Rick's Hairstyling, an upscale hairstyling salon located in Beverly Hills that is own MacBook Pro 4 5 7
