All 34 Flexible Budgets questions
More in Flexible Budgets
What is the allowed cost (budget allowance) in flexible budgeting? How do you prepare a flexible budget? What is the difference between fixed, variable, and semi-variable costs in flexible budgeting? What is the high-low method for splitting semi-variable costs? How are flexible budgets used for control reporting? What is the flexible budget variance? What is the sales-volume variance in the context of flexible budgets? What is the difference between a static budget variance and a flexible budget variance? What are the limitations of flexible budgeting? How does flexible budgeting interact with absorption vs marginal costing?
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How does the flexible budget separate the volume variance from other variances?

Intermediate

Answer

By flexing the budget to actual volume, the difference between the original (fixed) budget and the flexed budget is the sales/activity volume variance, while the difference between the flexed budget and actual results reflects price and efficiency variances. This two-stage comparison isolates the effect of producing/selling a different quantity from operating performance.
Fixed budget -> (volume variance) -> Flexed budget -> (price/efficiency) -> Actual.
Real-world example The flexed budget cleanly splits 'we sold a different volume' from 'we spent differently per unit'.

Common follow-ups: What does the gap between fixed and flexed budget show? | What does the gap to actual show?

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