FLEXIBILITY IS AN ESSENTIAL COMPONENT OF AN EFFECTIVE BUDGETING.

PLEASE DISCUSS Once your business is operational, it's essential to plan and hardly manage its financial performance. Creating a budgeting process is the most effective way to keep your business in a good track with the better finances that will be goes on. With the budget its can plan your finances, ensure that you can continue to fund current commitments, enable to make confident financial decisions and meet the objectives, and have enough money for the future project. In business we need to plan so that the financial can be raise. With the poor financial and or lack of planning it will contribute the business come to fail. When this is happen we need to update our original business plan which is the good place to start. There are several way to reviewing the finances that is cash flow,working capital, cost base, and others, but in order to keep this finances at the top or at the good one so we need to make sure our finances is flexible. We understand that when it is come to flexible budget then there are also static budget. Both of them come to different things even both of them is a budget but both of them bring the different ideas and different future of budget and planning. Flexible budget is a budget that adjusts for changes in the volume of activity while the static budget remains at one amount without of the volume of activity. The flexible budget is a performance of evaluation tool. It cannot be prepared before the end of the period. A flexible budget adjusts the static budget for the actual level of output. According to Dennis Caplan (2011) if u make a flexible budget following steps are used to prepare a flexible budget first determine the budgeted variable cost per unit of output that is you should also determine the budgeted sales price per unit of output, if the entity to which the budget applies generates revenue (e.g., the retailer or the hospital) second, determine the budgeted level of fixed costs third, determine the actual volume of output achieved (e.g., units produced for a factory, units sold for a retailer, patient days for a hospital) then you can build the flexible budget based on the budgeted cost information from steps first and second, and the actual volume of output from step third. As example that I will give here, we assume that the manufacturer determines its cost of electricity to make their product approximately RM 15 per machine per hour (MH). It also knows that the factory supervision, depreciation, and other fixed costs are approximately RM 50,000 per month. Normally, the production of product operates between RM 5,000 and 8,000 hours per month. Based on this information, the flexible budget for each month would be RM 50,000 per machine per hour. Now lets illustrate the flexible budget by using some data. If the production of product is required to operate for 5,000 hours during January, the flexible budget for January will be RM125, 000 (RM50, 000 fixed + RM15 x 5,000 MH). If the production of product is required to operate in February for 6,300 hours, then the flexible budget for February will be RM 144, 500 (RM50, 000 fixed + RM15 x 6,300 MH). If March requires only 4,100 machine hours, the flexible budget for March will be RM111, 500 (RM50,000 fixed + RM15 x 4,100 MH). If the plant manager is required to use more machine hours, it is logical to increase the plant managers budget for the additional cost of electricity and supplies. The managers budget should also decrease when the need to operate the product is reduced. In short, the flexible budget provides a better opportunity for planning and controlling than does a static budget.

So from the definition to the example that I give we should be enabling to understand the function of flexible budget that is: 1. Make you add more on the budget that provide the unthinkable ideas or unforeseen things that we will face it, thus it enables the management to analyst the deviation of actual output form expected output, 2. We also can compare the actual cost at the actual volume with the budgeted costs at the actual, volume then the flexible budget provides a correct basis for comparison between actual and expected costs for an actual activity. 3. Flexible budget helps to fulfill the objectives of cost control as it shows where the actual performance deviated from the planned performance. According to Professor W. F. BENTZ (2009), since the flexible budget is giving a lot of benefit to us so it is useful to use it for: 1. Estimate total indirect factory costs at different levels of activity to compute budgeted activity cost rates, 2. Estimate total activity costs at different levels of activity to compute budgeted or standard activity cost rates. 3. Estimate total activity cost for the level of activity achieved for control and performance evaluation purposes, 4. Forecast total activity costs for cash budgeting purposes, 5. Forecast activity costs for expense budgeting purposes, ante forecast total activity costs to forecast earnings under different scenarios. As for the conclusion, if you run your own business, it is not hard to implement a flexible budget based on the business's numbers. You do not need to be an accountant, the math is simple and it is typically worth the effort in the end. After all, it is hard to know how you can make your company better and more cost efficient when you do not even know where you are missing the mark. Every major company in the world uses flexible budgeting and you can bet that there is a good reason for that. So the next time you think about budgeting, think beyond the static budget that most people are familiar with. Understanding flexible budgeting can help you gain a wealth of information through the analysis that budget variances afford to those who use them.