Choice of Budget Flexing Basis
The most suitable flexing basis must be considered where it assists in the comparison of alternative budget data at the planning stage and for the comparison of budget and real data at the control stage.
Various organizations employ various flexing bases however the following are most commonly utilized:
- Machine hours
- Direct labour hours
- Input to a cost centre
- Output from a cost centre
For the above specified flexing bases to be utilized a number of requirements must be fulfilled.
1. The flexing bases must be correlated along with the way in which costs vary. As an example of, does the number of miles traveled via distribution vehicles affect the maintenance and repairs expenses?
2. The flexible bases must be easily understood with the management and not subject to manipulation.
3. The flexible bases must be readily obtainable.
4. It must be independent of other factors.