The theoretical foundations of these two assumptions are quite extensive and require a special study, but below I present the factors that support their use.
Standard budget
The standard budget is based on carefully predetermined data that is used to plan and control manufacturing costs for the highest possible profit. This type of budget takes the standard costs to define the prices of the production factors that should be paid and the quantities of these factors that should be consumed in the productive period.
The objective of "budgeting on a standard basis" is to establish a standard cost for each unit of product, predetermining the cost for each unit of direct materials, direct labor, and indirect manufacturing costs, required to produce it.
This budget has the advantage of:
- Effectively evaluate performance Correctly evaluate the production process Make correct decisions Better cost evaluation
But it also has limitations like:
- Standards formed in judgments rather than actual events Sometimes the proposed standard is permissive and flexible There should be constant monitoring of the standards.
Flexible budget
The flexible budget, also known as variable, adjustable scale or cost control, consists of the elaboration of a subsequent budget, when the actual production and sales levels are known. These actual physical sales and productions valued at budgeted unit prices and costs are called "budgeting on flexible bases."
The flexible budget allows you to prepare different types of budgets depending on the different levels of activity, it is closely related to the variations in fixed and variable costs.
Advantage
- They simplify the task of preparing the budget for a particular period. They result in more accurate budgets, since they will take into account the different behavior of factors in the face of changes in the level of activity. They allow a more meaningful comparison between the real information and the budgeted, as it is a comparable import.
Drawbacks
- They are a laborious type of task as they have to analyze the behavior of all costs.The first time they are applied in the company they require great effort on the part of the staff.
A flexible budget compares actual results with budgeted returns for a given period.
Here is a useful video lesson in which the flexible budget concept is explained quite clearly (Professor Marc Pérez Bonaventura):
When comparing the flexible budget and the reality, deviations are obtained exclusively due to the purchase prices of the production factors, the consumption of these factors and the sale price of these products, but in no case to different productions and sales, due to that both, flexible budget and reality, are derived from the amount of actual production and sales.
In mathematical terms, for income, it is represented like this:
Flexible budget = QV x PV
Being:
- QV = The physical sales quantity PV = The budgeted unit sales price
Regarding costs, it is represented by:
Flexible budget = QV x CV
Where:
- QV = The physical quantity of sale CV = The budgeted unit cost of sale
Bibliography
- Aguilar Conde, Pablo; Prieto Moreno, Begoña and Santidrián Arroyo, Alicia. Cost and management accounting: a practical approach. Delta Publications, 2005. Muñiz González, Luis. Budget control: Planning, preparation, implementation and monitoring of the budget. Profit Editorial, 2009.Publicaciones Vértice SL Management control. Editorial Vértice, 2007.
