Evaluation  ‘I fie Plinths value method including the NPV variation possesses several merits, TIle first. and probably the most significant, advantage is that it explicitly recognizes the time value of money. In Example 10.6, for instance (Table 10.1.4). the total cash inflows (CFAT) pertaining to the two machines (A and B) arc equal. But the present value as well as the f”I’V is different, As

Modified Flexible Budgets

Modified Flexible Budgets From the preceding discussion it should be clear that flexible budget as a tool of planning and control are superior to fixed budgets. The major weaknesses of state budgets are their inability to: (i) Disclose the potential variability of various estimates used in preparing the budget and (ii) Indicate the range within which costs can be expected to fall. They are not useful, therefore

Mixed Costs

Mixed Costs The mixed cost, are composed of both fixed and variable elements. The fixed part of represents a cost of capacity, while the variable elements is influenced by change in activity. For budgeting purposes, mixed costs must be broken down into their fixed amount of fixed costs and the proportion to to total changes in output/volume can be worked out. That is, the fixed costs remain constant regardle

Cost Behaviour with Change in Volume

Cost Behaviour with Change in Volume Three different types of cost behavior can be visualized with changes in volume/level of activity. (i) Fixed costs, (ii) Variable costs, and (iii) Mixed costs. FIXED Costs The fixed costs are associated with inputs that do not fluctuate in response to changes in the total activity or output of the firm, within relevant range for a given budget period. They may also be called

Measure of Volume

Measure of Volume The volume measure selected for any given department/firm should be that quantity which displays the greatest degree of correlation with those costs that vary with the level -of operating activity. Different departments may use different measures of volume. In the first place, the measure of volume may be expressed in terms of the activity or factor that causes costs to vary, for example, labo

Flexible Budgets

Flexible Budgets The discussion of the master budget and its components in the preceding section was based on the assumption of fixed level of activity. In other words, the budgets were related to a specific level of operation implying thereby that a firm can accurately and precisely forecast the level of its behavior operations in a given period of time. If the business environment is capable of accurate pred


PREPARATION/TYPES OF BUDGETS It may be recalled that a budget with reference to planning and control refers to a comprehensive and coordinated budget generally known as master budget. In operational terms, a comprehensive or overall budget has several components. A master budget normally consists of three types budgets: (i) Operating budgets, (ii) Financial budgets. and (iii) Special decision budgets. Another


BUDGETS-PURPOSE As a tool, budgets serve as a guide to the conduct of operations and a basis for evaluating actual results. The main objectives of budgeting are: (i) Explicit statement of expectations, (ii) Communication, (iii) Coordination, and (iv) Expectations as a framework for judging performance. Explicit Statement of Expectations One purpose of budgeting is to state expectations in formal terms so that m


COORDINATION Budgets are prepared for the different components /segments/divisions/facets/activities of an organisation so as to take care of the situations and problems of each component. The budget for each of the components are prepared in harmony with each another. This is called coordination. Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly emai


COMPREHENSIVENESS A budget is comprehensive in that all the activities and operations of an organisation are included in it. It covers the organisation as a whole and not only some segments. The modus operandi is that budgets are prepared for each segment/facet/activity division of an organisation. These are integrated into an overall budget for the entire organisation. The overall budget is referred to as the