A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity. This lecture introduces you to flexible budgets with the following contents: | Chapter 7 Flexible budgets 7- Flexible budgets Static budget: prepared for one level of planned activity. Flexible budget: covers a range of activity within a business. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. 7- Cost behavior: The more knowledge of cost behavior, the more accurate the budgeting process. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. Semi-variable costs: have a fixed and a variable component. 7- Flexible budget equation 7- Statement of financial performance (applying cost behavior principles) (p. 159) Anshar Manufacturing $ $ $ Sales Less variable costs Contribution margin Less fixed costs Net profit Anshar Manufacturing 7- Flexible . | Chapter 7 Flexible budgets 7- Flexible budgets Static budget: prepared for one level of planned activity. Flexible budget: covers a range of activity within a business. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. 7- Cost behavior: The more knowledge of cost behavior, the more accurate the budgeting process. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. Semi-variable costs: have a fixed and a variable component. 7- Flexible budget equation 7- Statement of financial performance (applying cost behavior principles) (p. 159) Anshar Manufacturing $ $ $ Sales Less variable costs Contribution margin Less fixed costs Net profit Anshar Manufacturing 7- Flexible budget analysis Activity volume variance: shows what portion of the variance was due to the actual volume being different from the desired volume as per master budget. Volume levels may be based on: Number of units sold Professional hours Machine hours Student contact hours Flexible budget variance: shows the variance when the actual volume achieved is used to recalculate the budget figures (refer p. 163) 7- Summary Static budget variance: Difference between actual results and master budget figures. Activity volume variance: Difference between master budget figures and budgeted figures recalculated for actual volume achieved. Flexible budget variance: Difference between actual results and budgeted figures recalculated for actual volume achieved. 7-
