Flexible Budget verses Forecast Budget

FlexibleBudget verses Forecast Budget

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FlexibleBudget verses Forecast Budget

Whatis the difference between flexible budget and forecast budget? Isthere any really? To start with, a budget is defined as acomprehensive financial plan which reflects projected incomes andexpenditures for a particular period of time. Some economists definea flexible budget as an estimate that gives a clearer picture ofactual financial performance and allows one to modify future budgetsso as to equal the predictable figures based on numbers. On the otherhand, a forecast budget is defined as a budget that allows executivesand planners to fix objectives by making estimates or predictions ofprojected income and sales. Looking at these definitions, thereisn’t much of a difference between the two. This brings us to thequestion of when would it make sense to use a flexible budget ascompared to a forecast budget?

Itwould make sense to use a flexible budget when the company wants toexercise control. Forecasting basically sets projected results whichmay or may not be applied at all in future. Flexible budgets can beused when there is a strict future estimate as compared to a forecastbudget which is used to gawk into indefinite future. Flexible budgetcan be used at the end of the period since it is flexible [ CITATION NNa11 l 1033 ].

Aflexible budget can be used when evaluating activities since it is aperformance assessment tool [ CITATION NNa11 l 1033 ].These two types of budget are actually interconnected and we can saythey are almost thick as thieves since a forecast budget is aprojection of the past information into the future whereas a flexiblebudget is a budget that adjusts for unforeseen changes in the volumeof activities.

References

Naya, N. (2011, 8 22). Bright hub. Retrieved from Bright hub.com: http://www.brighthub.com/office/entrepreneurs/articles/123586.aspx