THE THEORY, CONSTRUCTION, AND USES OF FLEXIBLE BUDGETS*

Abstract

THIS DISSERTATION deals with the general problem of flexible budgets in industrial situations. The problem has two broad aspects: first, the application of flexible budgets in a comprehensive budgetary program, and second, the relationship of flexible budgets to standard costs. Flexible budgets are dynamic cost or expense budgets expressing the effect of volume on costs and expenses. The study is somewhat comprehensive and exploratory in order to bring together for analysis, comparison, and appraisal, the various concepts, methodologies, and applications of flexible budgets. Consideration of the general problem necessitated study of certain specific problems, viz.: 1. Consideration and analysis of the underlying theory of flexible budgets-the principle of flexibility of costs. 2. Methods and mathematical aspects of the derivation and formal construction of flexible budgets. 3. Application of flexible budgets with the fixed-forecast budget. 4. Application of flexible budgets with standard costs. 5. Managerial uses of flexible budgets. 6. The interrelationship of flexible budgets and break-even analysis. The procedure involved a complete survey of current literature in order to determine the latest reported techniques, methods, and uses. The results of this aspect of the research are explained and illustrated to bring out the pertinent characteristics and interrelationships noted. This phase of the research was supplemented by field research conducted among industrial establishments to determine to what extent the reported techniques and applications are being used.' The results of the study point up the significant fact that in most cases flexible expense budgets are being used to supplement rather