How Are Flexible Budget Reports Used to Evaluate Performance?
A flexible budget is suited for the many financial changes a single company may experience in contrast to a fixed budget, which has the same figures available despite the changes. The flexible budget is the ideal budget to determine and evaluate how well a business is performing, as it provides specific figures in various categories pertaining to the business. This means that the flexible budget reports can be used to evaluate different types of performances, whether it is internal employee, sales or marketing performances.
Flexible budget reports can be used to evaluate the internal performance of the employees of the business. The salary payments outlined in the flexible budget can be compared to the amount of sales at any given time to determine whether more or fewer sales employees are more effective. While a larger amount of sales representative can cover a larger area, a smaller amount may be more appealing to the curious customers. The performances of each individual sales representative can be evaluated in terms of items sold each month.
The flexible budget will also reveal where the company is spending its money. This is outlined in the expenses section under both fixed and flexible expenses. Identify large expenses and compare them to the income of the business during the months of excessive spending. If the business earned more during those months, it is more likely that the budget does not have a negative standing compared to a low-income month with excessive spending. The budget report can reveal whether the company is performing as expected to produce a positive net worth for the month.
Since the flexible budget will show how much the company is earning through product sales, a flexible budget report will break down what products are bestsellers and which are not selling at all. This information reveals how well a business is doing at any given time in terms of product sales and role of the market. The flexible budget report evaluates product performances, as well as help executives plan ahead and expand the existing product line to suit customer needs.
If the company has decided to invest in a larger marketing campaign during a chosen month, the flexible budget spending can be compared to the overall sales performance of that month. If the sales numbers have increased after the date the marketing campaign has launched, as well as several weeks after, the company is performing well. The marketing campaign has not been effective if the sales do not increase, or if they stay steady after campaign launch.