Need for Budget Updating

Need for Budget Updating
Flexible or variable budgets should be kept current so that targets
are realistic and accurately reflect deviations from expected costs.
Budgets, however, may lose their effectiveness as a measuring and
control device if they are adjusted for every small change in operating
costs. There is no rule of thumb for triggering a budget adjustment.
However, budgets should be adjusted for changes in product
mix, major changes in cost levels, and schedule variations that significantly
alter cost relationships

Preparing to Operate the Business
On a departmental level, budget performance reflects actual
departmental cost behavior, and budget gains or savings directly
result in improvements in profits. The budget becomes an individual
department’s profit and loss expectation based on responsibility
accounting.
One area in which potential problems may not be recognized is
deferred maintenance. When increased output or profit is being
emphasized, periodic maintenance is often deferred to “keep the
wheels turning.” This may be shortsighted, resulting instead in
deferred costs when breakdowns occur.