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Can you explain me why managers make fixed budget..?however manager need flexible budget to calculate variances….??what is the reason behind it….?
And why mangers need flexible budgets to calculate variances..My question is that why manager of responsibilty centre dont compare fixed budget with actual results to calculate variances…??what is the reason behind it?
I did answer – I don’t know what happened to my replies 🙁
The fixed budget is the overall target for the coming year.
However if you we are measuring the performance of (say) that manager responsible for materials then there is no point in comparing the actual results with the original fixed budget because if we have produced more or less units then we would expect to spend more or less (and producing more or less is not the fault of the manager responsible for materials).
So we flew the budget to calculate how much we should have spend for the actual level of production. Then it makes sense to compare.
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