How can a company make use of flexible budgets in planning and for monitoring control?

i am writing a report for a managing director of a restaurant chain, in which he feels there is no point in setting budgets as they never reflect what actually happens.


i would be grate-full for any opinions/helpHow can a company make use of flexible budgets in planning and for monitoring control?
When we talked about budget, people normally think about static


budget (that is developed for a single level of activity). It is very useful for planning and control purposes. However, you were also cautioned about the potential shortcomings of using static budgets for performance evaluation. Specifically, when the actual output varies from the anticipated level, variances are likely to arise. These variances can be quite misleading. The genesis of the problem is


that variable costs will tend to track volume. If the company produces and sells more products than anticipated, one would expect to see more variable costs (and vice versa).





The flexible budget responds to changes in activity, and may provide a better tool for performance evaluation. It is driven by the expected cost behavior. Fixed cost is the same no matter the activity level, and variable costs are a direct function of observed activity. When performance evaluation is based on a static budget, there is little incentive to drive sales and production above anticipated levels because increases in volume tend to produce more costs and unfavorable variances. The flexible budget-based performance evaluation provides a remedy for this phenomenon.





Cheers...