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Accounting A Static Budget Is Defined As Essay

Accounting A static budget is defined as a budget that is "planned ahead of time based on the owner's best guess about future actual activity." This type of budget is therefore put together for the upcoming time period, and is often based on the data from past time periods, plus or minus different adjustments that management thinks will be necessary. In contrast, a flexible budget is one where the business management can make changes in the midst of an accounting period. Flexible budgeting allows for management to make better decisions on the fly, because the information used in those decisions is kept more up-to-date. Static budgeting relies only on the ability of management to analyze the numbers after the period in order to determine the magnitude and direction of variance, along with the causes of variance. For a flexible budget, management can identify issues with the budget right away, and take steps to deal with them. The new strategy and tactics can then be reflected the budget.

For the charter school, the budget presented is basically three static budgets. The budgets are set depending on the number of students, which is unknown. However, this budget does not reflect capacity to update the figures depending on what actual enrollment looks like. Instead, management would probably just use the closest number to the actual as a comparable when looking at variance. Thus, only one of these three budgets would actually be chosen for the variance analysis.

The total revenue per student, excluding grants, and net of the TRA reduction, is $6,064.06. This is determined by adding up the different revenue categories to determine a total non-grant revenue figure per student.

In calculating the total expenses...

The total expenses per student depend on the number of students. So at the 120 student level, the total expenses are $4,518 per student. At the 100 student level, total expenses per student are $5,283 and at the 66 student level the total expenses per student are $7,646. The vast majority of expense categories -- and most of the expenses by dollar -- are fixed. Variable expenses are only $694.5 per student. Fixed expenses are $458,817.
There are few expenses that are not necessary. The ones that could be offset by parents, such as field trips, could be cut from the budget. Others, however, are relatively minor. There could be cuts made with things like grass removal, but the bigger cuts would be in items that have a fixed/variable component. Staff levels -- especially teachers -- should be variable depending on the number of students. A school with 66 students will need about half the number of teachers as a school with 120 students. Yet, the payroll expense does not change depending on the number of students. Given that this is the biggest expense, surely adjusting it for class size would be a logical means of controlling costs. At some point, a baseline level of staff is required to run the premises, but at least some of class instruction is a variable expense and should be dependent on the number of students.

This school seems viable. The budget is set out for three different levels of enrollment, two of which are profitable without any work done on the budget at all. The third level, 66 students, is profitable if just a single teacher (or maybe 1 1/2 FTEs) is cut. Additionally, some services might not be viable. Special…

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Works Cited:

Mueller, D. (2012). Static budget vs. flexible budget. eHow. Retrieved September 12, 2012 from http://www.ehow.com/info_7784641_static-budget-vs.-flexible-budget.html

Bigelow, L. (2012). Static vs. flexible budgets for new businesses. Houston Chronicle. Retrieved September 12, 2012 from http://smallbusiness.chron.com/static-vs.-flexible-budgets-new-businesses-20879.html
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