Comparison of Two Types of Operational Budgets - Assignment Example

Alternatively, variable costs can be stated as cost of every unit activity measure. Actual activity measures are then fed into the model after the accounting period. After this, the flexible budget is updated automatically by the variable costs. The resultant flexible budget is ten entered into the accounting system in order for comparisons to be made. These comparisons produce variances more relevant than those produced under a static budget. These variances are especially because the expenses involved are based on an activity.

This accounts for the small variances registered in this comparison than those registered under static budget. Flexible budget can range across levels of sophistication. In basic flexible budget, alterations are recorded where there is a direct variation between certain expenses and revenues (Hope & Fraser, 2003). Under intermediate flexible budget, there are certain expenditures that will change with other activity measures and not with revenue. Advanced flexible budget deals with expenditures that vary only at given ranges of other activities and revenue.

Master budget is a planning document that brings together all the budgets. It matches the beginning of a company’s fiscal year and be organized in quarters or months. The operating and financial budgets are the two parts of a master budget. It helps in judging the performance of company and its centers. The management makes modifies the master budget until it allocates funds to all set goals. Direct labor, direct materials, sales, manufacturing overhead and production are some of the budgets that show on a master budget (Finkler & McHugh, 2008).

After preparation, the master budget is fed into the accounting system and financial reports are generated. Comparisons are then drawn between actual results and the budgeted amounts. There are spreadsheets that can help produce master budgets but they can have errors. A master budget appears