All 34 Flexible Budgets questions
More in Flexible Budgets
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? 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 does the flexible budget separate the volume variance from other variances? How are flexible budgets used for control reporting?
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Budgeting & Forecasting › Flexible Budgets

Give a simple example of flexing a budget.

Beginner

Answer

If the budget assumed 1,000 units with variable cost $5/unit and fixed cost $2,000 (total $7,000), and actual output is 1,200 units, the flexed budget is (1,200 x $5) + $2,000 = $8,000. Actual cost is then compared to $8,000, not the original $7,000, for a fair variance.
(1,200 x 5) + 2,000 = 8,000 flexed allowance.
Real-world example At 1,200 units the allowed cost rises to 8,000, the fair benchmark for actual spend.

Common follow-ups: Why compare to 8,000 not 7,000? | What stayed constant?

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