Definition of Flexible Budget
A flexible budget is a budget that can be adjusted with respect to different levels of output or activity. In the flexible budget, a company identifies the variable nature of expenses that can be applied on the level of activity and adds them to fixed costs to form a budget.
Assume a car wash has a building rent of $30,000 per month and a monthly capacity of washing 600-800 cars. Based on this a variable rate of $5 per car wash is decided that includes soap, water charges, and polishing. Assume that the car wash expects to wash 750 cars, 680 cars, and 730 cars in the months of June, July, and August respectively.
Based on this information the flexible budget will be as follows.
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