What you will learn to do: Prepare a flexible operating budget

Managers use a technique known as flexible budgeting to deal with budgetary adjustments. A flexible operating budget is a special kind of budget that provides detailed information about budgeted expenses (and revenues) at various levels of output, versus a static budget that assumes a particular level of output with no other options.

In any budget, the difference between the actual results and the budgeted amount is known as the variance. In a flexible budget, the variance is often split into two categories: the flexible variance and the volume variance.

The flexible budget variance isolates the difference between actual results and budget projections based on larger than expected or less than expected sales price (for revenues) and costs (for expenses).

The volume variance isolates the difference between actual results and budget projections due to falling short or exceeding sales volume and therefore production.

When you are done with this section, you will be able to:

• Prepare a flexible budget
• Compute price and cost variances
• Compute volume variances
• Prepare a flexible budget performance report

Learning Activities

The learning activities for this section include the following:

• Reading: Flexible Budget
• Self Check: Flexible Budget
• Reading: Flexible Budget Variance
• Self Check: Flexible Budget Variance
• Reading: Sales Volume Variance
• Self Check: Sales Volume Variance
• Reading: Performance Report
• Self Check: Performance Report