Flexible Budgets In contrast to a static budget, which is based on one level of activity, a fl exible budget projects budget data for various levels of activity. In essence, the fl exible budget is a series of static budgets at different levels of activity. The fl exible budget recognizes that the budgetary process is more useful if it is adaptable to changed operating conditions. Flexible budgets can be prepared for each of the types of budgets included in the master budget. For example, Marriott Hotels can budget revenues and net income on the basis of 60%, 80%, and 100% of room occupancy. Similarly, American Van Lines can budget its operating expenses on the basis of various levels of truck miles driven. Duke Energy can budget revenue and net income on the basis of estimated billions of kwh (kilowatt hours) of residential, commercial, and industrial electricity generated. In the following pages, we will illustrate a fl exible budget for manufacturing overhead. Why Flexible Budgets? Assume that you are the manager in charge of manufacturing overhead in the Forging Department of Barton Steel. In preparing the manufacturing overhead budget for 2012, you prepare the following static budget based on a production volume of 10,000 units of steel ingots.
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