All 34 Flexible Budgets questions
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What is a flexible budget? What is the relevant range and why does it matter for flexible budgets? What is the difference between a flexible budget and a rolling budget? What is the purpose of a flexible budget in performance evaluation? How do fixed costs behave when a budget is flexed? What activity measure should be used to flex a budget? How does a flexible budget improve on a fixed budget for cost control? What is meant by 'flexing' a budget? Give a simple example of flexing a budget. What is the allowed cost (budget allowance) in flexible budgeting?
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Budgeting & Forecasting › Flexible Budgets

Why is a fixed budget misleading for performance comparison?

Beginner

Answer

A fixed budget is set for one planned activity level. If actual volume differs, comparing actual costs to the fixed budget mixes up volume effects with efficiency and price effects—e.g., higher variable costs simply because more units were made look like overspending. Flexing the budget to actual volume removes this distortion.
Real-world example Actual material cost looks over budget only because output exceeded plan; flexing reveals no real overspend.

Common follow-ups: What effects get confused? | How does flexing fix this?

Types of Budgets Variance Analysis Flexible Budgets
All 34 Flexible Budgets questions