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FIXED BUDGET vs FORWARD PLAN :<3: :star: - Coggle Diagram
FIXED BUDGET vs FORWARD PLAN
:<3: :star:
I. FIXED BUDGET
:forbidden:
A financial plan that sets out expected revenues and expenses for a specific period (like a year) and
remains unchanged throughout that period.
:green_cross:
Single Level of Activity
: A fixed budget is set for a specific level of activity and doesn't change. It's
like setting a plan for 1 scenario
and
sticking to it, no matter what happens
.
2. Scope
: It focuses on a set period and
doesn't adjust
for
changes
in activity levels or
unexpected events
3. CHARACTERISTICS:
Static
: It
doesn't adjust
for changes in activity levels, like sales volume or production.
Predictable
: It provides a clear,
unchanging target
for revenues and expenses.
4. Why
Use a Fixed Budget?
Simplicity
: It's straightforward and easy to manage because it doesn't change.
Control
: It helps you control spending by sticking to a set plan.
5. Limitations
Inflexibility
: It doesn't adapt to changes, so if your sales increase or decrease, the budget might not be accurate.
Risk of Inaccuracy
: If unexpected events occur, the fixed budget might
not reflect
the actual financial situation.
Fixed budgets
include both fixed and variable costs
.
8. Absorption Costing
Also known as
full costing
, includes
all the costs
of production in the cost of a product. This means both fixed and variable costs are included.
:explode:
Components:
Direct Costs
Fixed OH (rent/salaries)
Variable OH: utilities
7. Marginal Costing
Also known as
variable
costing, includes
only
the
variable costs of production
in the cost of a product.
Fixed costs
are treated as period costs and are
not included
in the product cost.
:no_entry:
Components:
Direct Costs
Variable OH
Fixed OH: treated separately and not included in the product cost
II. FORWARD PLAN
:champagne:
A forward plan is a
broader term
that refers to any plan looking ahead into the future.
It can include
financial plans, strategic plans, operational plans
, etc.
Example
:warning: IPG MediaBrands
Forward Plan
: need to submit in August
Budget
: need to submit in October