In short
A flexible budget adjusts budgeted costs and revenues to the actual level of activity, using known cost behavior. Comparing actual results with it separates efficiency and price effects from the effect of volume.
Key takeaways
- The static budget variance equals the flexible budget variance plus the sales volume variance.
- Fixed costs are the same in the flexible and static budgets within the relevant range.
- It gives a fairer basis for evaluating managers who don't control volume.
Where it's tested
BAR: Financial Forecasting, Budgeting & Valuation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
What does a flexible budget do?