For the flexible budget performance report, the flexible budget is prepared using the ACTUAL level of production instead of the budgeted activity. The difference between actual costs incurred and the flexible budget amount for that same level of operations is the budget variance. Budget variances can indicate a department’s or company’s degree of efficiency since they emerge from a comparison of what was with what should have been. The performance report shows the budget variance for each line item. We’re preparing this performance report on a summary basis for an entire year, but a company might prepare this kind of report using more detail and presenting it on a monthly basis.

Actual Results
Flexible Budget Variance
F or U
Flexible Budget
Sales Volume Variance
F or U
Static Budget

Units
180,000

          180,000

        172,405

Sales Revenue
$6,030,000
$   (90,000)
U
$6,120,000
$   258,230
F
$ 5,861,770

Variable Costs
3,420,000
$     57,600
U
3,362,400
$   141,875
U
3,220,525

Contribution Margin
2,610,000
$  (147,600)
U
2,757,600
$   116,355
F
2,641,245

Fixed Costs
2,650,000
$    197,306
U
2,452,694
$         –
N/A
2,452,694

Operating Income
$ (40,000)Double line
$  (344,906)
UDouble line
$  304,906Double line
$   116,355
FDouble line
$   188,551Double line

The overall budget was unfavorable:

Before finishing this section, let’s take a look at one other example of a flexible budget report:

You can view the transcript for “flexible budget variance” here (opens in new window).

Now, check your understanding of the budget performance report.