ABSTRACT
After studying this chapter, you should have developed an appreciation of:
1. The value of using flexible budgets
2. A systematic approach that can be used when preparing variance
analyses
3. The insights resulting from variance analyses
4. The nature and merits of benchmarking
This chapter builds on some of the budget and responsibility accounting
issues introduced in the last chapter. Firstly, we examine flexible budgeting, a
technique that represents a slight refinement of the static budgeting approach
described in the last chapter. In a static budgeting system, a budget is rigid in
the sense that it is not modified once the actual volume of sales is known.
While this approach is used extensively, some managers find it helpful to flex
budgets up or down in line with the actual volume of sales achieved. Failure to
accurately predict the volume of sales is a major factor causing many
significant differences between the static budget and actual performance.
Under flexible budgeting, however, the effect of a hotel selling more or less
