All 34 Flexible Budgets questions
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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. 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? What is the flexible budget variance?
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Budgeting & Forecasting › Flexible Budgets

What is the allowed cost (budget allowance) in flexible budgeting?

Beginner

Answer

The allowed cost is the cost the flexed budget permits for the actual level of activity—variable cost per unit times actual units plus fixed cost. It's the fair benchmark against which actual cost is compared, so the variance reflects performance rather than volume differences.
Real-world example The allowed cost at actual output is the yardstick for judging whether spending was controlled.

Common follow-ups: How is the allowed cost computed? | What does comparing to it reveal?

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