How to work out flexed budget

Before you get started grab as much information bank statements bills as you can. Consider Kira president of the fictional Skate Company which manufactures roller skates.

Higher costs create unfavorable variance.

How to work out flexed budget. The process of flexing a budget involves identifying the behaviour of costs and revenue and applying these behaviours to different output levels. Once a budget has been flexed it can then be compared with actual figures and used to calculate variances. To prepare a flexible budget you need to have a master budget really understand cost behavior and know the actual volume of goods produced and sold.

Consider Kira president of the fictional Skate Company which manufactures roller skates. Kiras accountant Steve prepared the overhead budget shown. Prepare a flexible budget and state whether the variances are adverse or favourable.

Show all figures as positive numbers. Click to displayhide the solution. Electricity is a semi-variable cost.

Quality control is a stepped cost. The cost increases by 2000 for each 500 units produced. Original budget Revised budget Actual Flexed budget Variance Adverse favourable Units 2000 2200 1900 1900.

You are required to prepare a flexible budget at actual level of output and calculate flexible budget variances. Solution Since revenues and variable costs vary directly with number of units we need to calculate budgeted price and variable costs per unit by dividing static budget amounts by 30000 budgeted units. A flexible budget variance can be calculated by comparing a companys actual costs and revenue to corresponding figures in a flexible budget.

The flexible budget is created from formulas that represent assumptions made when the planning budget was created. Higher costs create unfavorable variance. Our free Budget Planner puts you in control of your household spending and analyses your results to help you take control of your money.

Its already helped hundreds of thousands of people. Before you get started grab as much information bank statements bills as you can. The more up to date.

First calculate the percentage over budget for the total budget to get an understanding of the overall project. Start by finding the difference between the actual total expenses and total budgeted. The steps needed to construct a flexible budget are.

Identify all fixed costs and segregate them in the budget model. Determine the extent to which all variable costs change as activity measures change. Flexible Budget Definition Flexible budget is a budget that is mostly used as a static budget and basically changes with the changes occurring in the volume or activity held in production also helpful for increasing the managers efficiency and effectiveness because it is set to benchmark for the actual performance of the company.

First thing first when you flex a budget you do not flex the fixed costs in this case the fixed overheads will remain 350000 even for 30000 units. For all the other variable factors we will flex them to the flexed units. So in order to do that lets see the cost per unit for each ie.

Materials and Labours Materials 120000200000 6. A flexible budget or flex budget varies with changes in the amount of actual revenue earned. In its simplest form the flex budget will use percentages of revenue for certain expenses rather than the usual fixed numbers.

This allows for an infinite series of changes in budgeted expenses that are directly tied to revenue volume. A flexible budget is usually designed to predict effects of changes in volume and how that affects revenues and expenses. In order to accurately predict the changes in costs management has to identify the fixed costs and the variable costs.

A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static budget. The static budget amounts do not change.

They remain unchanged from the amounts established at the time that the static budget was prepared and approved. A flexible budget is a budget prepared with the costbehaviour of all cost elements known and classified as either fixed orvariable. The budget may be prepared at a number of activity levels andcan be flexed or changed to the actual level of activity for budgetarycontrol purposes.

Test your understanding 1. As already stated the advantage of flexing a budget is that for the purposes of control appraisal of performance the comparison can be done of the actual performance with the flexed budget. For the production of 10000 units of a product the following are the budgeted expenses.

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