What Do You Think Are Some Of The More Important Components Of A Budget? Why? What Are Some Criteria You Would Use To Choose Between A Fixed And A Flexible Budget? Why Do You Think The Use Of Zero-base Budgeting Remains Uncommon? Explain Your Answers


1 Answers

Mona Pellerin Profile
Mona Pellerin answered
Regardless if a budget is personal or business related, the most important components are the real costs required to maintain survival:  These include mortgage or rental payments, utilities, basic supplies (for individuals this would be food, clothing and cleaning supplies; for businesses this would include office supplies and cleaning supplies), transportation costs, insurances, taxes, allowances or payroll and miscellaneous to cover unexpected repairs, emergency travel or deductibles for insurance payments.  Miscellaneous should be accumulated in an interesting-bearing savings account.

Definition of fixed and flexible budgets: wiki.answers.com
A fixed budget is a 'budget set prior to the control period and not subsequently changed in response to changes in activity, costs or revenues'
A flexible budget results from 'flexing variable costs from original budgeted levels to the allowances permitted for actual volume achieved while maintaining fixed costs at original budget levels'
The choice between these two budgets depends upon the type of business, the economy and the projected revenues.  For individuals who live on a fixed income or do not expect more than a "price of living" increase in salary, it would be best to stay with a fixed budget.  If a business produces products for market sales, it would be better to use a flexible budget which is performance-based where money is allotted according to demand.  One caveat:  In a slow economy fixed costs should have a robust amount of fixed costs for marketing products.

If a business is service-based it is time-sensitive and a fixed budget would be better for making determinations what services should be provided without being priced outside of the competitive market.  In the field of medical care, particularly hospitals, fixed budgets are used in combination with the flexible budget.  When performance costs are evaluated with fixed budget costs, it assists with determining if the hospital is operating efficiently.  According to a CFO from a large hospital, they never use zero-based budgeting..

Zero-based Budgeting: Zero-based budgets mean that each year the budget begins at zero and all expenditures have to be evaluated and substantiated before excepted.  The reason it is less common is because it opens the door to subjectivity and special interests which may not be the best test of reality.

Answer Question