{"id":187,"date":"2021-01-26T22:21:31","date_gmt":"2021-01-26T22:21:31","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=187"},"modified":"2021-05-26T18:23:55","modified_gmt":"2021-05-26T18:23:55","slug":"flexible-budget","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/chapter\/flexible-budget\/","title":{"raw":"Flexible Budget","rendered":"Flexible Budget"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Prepare a flexible budget for a manufacturing company<\/li>\r\n<\/ul>\r\n<\/div>\r\nLet\u2019s review GelSoft\u2019s costs, both variable and fixed.\r\n\r\nVariable costs, per the master budget, consist of direct materials, direct labor, and a small amount of variable manufacturing overhead (such as utilities and shipping supplies):\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nVariable costs per unit<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Direct Materials<\/td>\r\n<td class=\"r\">$ \u00a0 7.48<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Labor<\/td>\r\n<td class=\"r\">10.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Manufacturing Overhead<\/td>\r\n<td class=\"r\">1.20<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 18.68<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nFixed costs included a long list of manufacturing overhead costs and selling, general, and administrative costs, summarized below:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nFixed Costs<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Manufacturing Overhead<\/td>\r\n<td class=\"r\">$ \u00a0 602,694<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling,\u00a0 General, and Administrative<\/td>\r\n<td class=\"r\">1,850,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a02,452,694<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nUsing a contribution margin format, we could create a static budget:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nFlexible Budget\r\n<\/caption>\r\n<caption style=\"text-align:right\">for units = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0                 172,405&nbsp;&nbsp;\r\n<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td class=\"r\">$5,861,770<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable Costs<\/td>\r\n<td class=\"r\">3,220,525<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution Margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed Costs<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nVariable costs are computed at $18.68 per unit times 172,405 units = $3,220,525 (rounded to the nearest whole dollar).\r\n\r\nNotice that the operating income computed using the contribution margin format is different from the operating income computed in the master budgeting process because we used full absorption costing in the master budget and took into account beginning and ending inventories.\r\n\r\nWe could test our contribution margin statement format by adding a column for production because when we created contribution margin statements, we assumed that production was equal to sales:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nFlexible Budget\r\n<\/caption>\r\n<caption style=\"text-align:right\">for units = \u00a0158,605\u00a0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;172,405&nbsp;&nbsp;\r\n<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td class=\"r\">$5,392,570<\/td>\r\n<td class=\"r\">$5,861,770<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable Costs<\/td>\r\n<td class=\"r\">2,962,741<\/td>\r\n<td class=\"r\">3,220,525<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution Margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,429,829<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed Costs<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>-$22,865<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nHere, our total variable and fixed manufacturing costs are equal to the total variable costs we calculated in our master budget when we calculated cost of goods sold (off by $5 due to rounding):\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nFixed Costs<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Variable Manufacturing Overhead<\/td>\r\n<td class=\"r\">$\u00a0 2,962,741<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed Manufacturing Overhead<\/td>\r\n<td class=\"r\">602,694<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 3,565,435<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\r\n<th class=\"r\" scope=\"col\">Units<\/th>\r\n<th class=\"r\" scope=\"col\">Cost\/Unit<\/th>\r\n<th class=\"r\" scope=\"col\">Total Costs<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Beginning inventory<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<td class=\"r\">$ \u00a0 \u00a020.00<\/td>\r\n<td class=\"r\">$\u00a0\u00a0600,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goods produced during the period<\/td>\r\n<td class=\"r\">158,605<\/td>\r\n<td class=\"r\">$ \u00a0 \u00a022.48<\/td>\r\n<td class=\"r highlight\">3,565,440<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goods available for sale<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,165,440<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less ending inventory<\/td>\r\n<td class=\"r\">16,200<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0\u00a022.48<\/td>\r\n<td class=\"r\">364,176<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of goods sold<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$3,801,264<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nAnd so, the difference between our contribution margin statement and the master budget is the effect of sales volume versus production volume, and the effect of both beginning and ending inventory.\r\n\r\nLet\u2019s add one more column to our budget for a possible sales volume of 185,000 units:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nFlexible Budget\r\n<\/caption>\r\n<caption style=\"text-align:left\">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for units =&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;158,605\u00a0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;172,405&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;185,000\r\n<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td class=\"r\">$5,392,570<\/td>\r\n<td class=\"r\">$5,861,770<\/td>\r\n<td class=\"r\">$6,290,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable Costs<\/td>\r\n<td class=\"r\">2,962,741<\/td>\r\n<td class=\"r\">3,220,525<\/td>\r\n<td class=\"r\">3,455,800<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution Margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,429,829<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,834,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed Costs<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<td class=\"r\">2,452,694<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>-$22,865<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$381,506<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\nWe now have a flexible budget that accommodates three different scenarios:\r\n<ol>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sales of 158,605 units resulting in a loss for the company<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sales of 172,405 upon which the master budget was prepared<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sale of 185,000 which might represent a \u201cbest case\u201d scenario<\/li>\r\n<\/ol>\r\nAn actual flexible budget could be prepared using two or more scenarios, although more than three might not add to the usefulness, and could be presented in much more detail. In addition, the flexible budget will only be useful within a relevant range. For instance, increasing production enough to cover 185,000 in sales may change both fixed and variable costs.\r\n\r\nBefore we move on to compute variances, check your understanding of the flexible budget.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220608[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Prepare a flexible budget for a manufacturing company<\/li>\n<\/ul>\n<\/div>\n<p>Let\u2019s review GelSoft\u2019s costs, both variable and fixed.<\/p>\n<p>Variable costs, per the master budget, consist of direct materials, direct labor, and a small amount of variable manufacturing overhead (such as utilities and shipping supplies):<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nVariable costs per unit<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Direct Materials<\/td>\n<td class=\"r\">$ \u00a0 7.48<\/td>\n<\/tr>\n<tr>\n<td>Direct Labor<\/td>\n<td class=\"r\">10.00<\/td>\n<\/tr>\n<tr>\n<td>Manufacturing Overhead<\/td>\n<td class=\"r\">1.20<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 18.68<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Fixed costs included a long list of manufacturing overhead costs and selling, general, and administrative costs, summarized below:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nFixed Costs<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Manufacturing Overhead<\/td>\n<td class=\"r\">$ \u00a0 602,694<\/td>\n<\/tr>\n<tr>\n<td>Selling,\u00a0 General, and Administrative<\/td>\n<td class=\"r\">1,850,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a02,452,694<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Using a contribution margin format, we could create a static budget:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nFlexible Budget<br \/>\n<\/caption>\n<caption style=\"text-align:right\">for units = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0                 172,405&nbsp;&nbsp;<br \/>\n<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Revenue<\/td>\n<td class=\"r\">$5,861,770<\/td>\n<\/tr>\n<tr>\n<td>Variable Costs<\/td>\n<td class=\"r\">3,220,525<\/td>\n<\/tr>\n<tr>\n<td>Contribution Margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\n<\/tr>\n<tr>\n<td>Fixed Costs<\/td>\n<td class=\"r\">2,452,694<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Variable costs are computed at $18.68 per unit times 172,405 units = $3,220,525 (rounded to the nearest whole dollar).<\/p>\n<p>Notice that the operating income computed using the contribution margin format is different from the operating income computed in the master budgeting process because we used full absorption costing in the master budget and took into account beginning and ending inventories.<\/p>\n<p>We could test our contribution margin statement format by adding a column for production because when we created contribution margin statements, we assumed that production was equal to sales:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nFlexible Budget<br \/>\n<\/caption>\n<caption style=\"text-align:right\">for units = \u00a0158,605\u00a0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;172,405&nbsp;&nbsp;<br \/>\n<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Revenue<\/td>\n<td class=\"r\">$5,392,570<\/td>\n<td class=\"r\">$5,861,770<\/td>\n<\/tr>\n<tr>\n<td>Variable Costs<\/td>\n<td class=\"r\">2,962,741<\/td>\n<td class=\"r\">3,220,525<\/td>\n<\/tr>\n<tr>\n<td>Contribution Margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,429,829<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\n<\/tr>\n<tr>\n<td>Fixed Costs<\/td>\n<td class=\"r\">2,452,694<\/td>\n<td class=\"r\">2,452,694<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>-$22,865<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Here, our total variable and fixed manufacturing costs are equal to the total variable costs we calculated in our master budget when we calculated cost of goods sold (off by $5 due to rounding):<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nFixed Costs<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Variable Manufacturing Overhead<\/td>\n<td class=\"r\">$\u00a0 2,962,741<\/td>\n<\/tr>\n<tr>\n<td>Fixed Manufacturing Overhead<\/td>\n<td class=\"r\">602,694<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 3,565,435<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\n<th class=\"r\" scope=\"col\">Units<\/th>\n<th class=\"r\" scope=\"col\">Cost\/Unit<\/th>\n<th class=\"r\" scope=\"col\">Total Costs<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Beginning inventory<\/td>\n<td class=\"r\">30,000<\/td>\n<td class=\"r\">$ \u00a0 \u00a020.00<\/td>\n<td class=\"r\">$\u00a0\u00a0600,000<\/td>\n<\/tr>\n<tr>\n<td>Goods produced during the period<\/td>\n<td class=\"r\">158,605<\/td>\n<td class=\"r\">$ \u00a0 \u00a022.48<\/td>\n<td class=\"r highlight\">3,565,440<\/td>\n<\/tr>\n<tr>\n<td>Goods available for sale<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,165,440<\/td>\n<\/tr>\n<tr>\n<td>Less ending inventory<\/td>\n<td class=\"r\">16,200<\/td>\n<td class=\"r\">$\u00a0 \u00a0\u00a022.48<\/td>\n<td class=\"r\">364,176<\/td>\n<\/tr>\n<tr>\n<td>Cost of goods sold<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$3,801,264<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>And so, the difference between our contribution margin statement and the master budget is the effect of sales volume versus production volume, and the effect of both beginning and ending inventory.<\/p>\n<p>Let\u2019s add one more column to our budget for a possible sales volume of 185,000 units:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nFlexible Budget<br \/>\n<\/caption>\n<caption style=\"text-align:left\">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for units =&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;158,605\u00a0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;172,405&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;185,000<br \/>\n<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Revenue<\/td>\n<td class=\"r\">$5,392,570<\/td>\n<td class=\"r\">$5,861,770<\/td>\n<td class=\"r\">$6,290,000<\/td>\n<\/tr>\n<tr>\n<td>Variable Costs<\/td>\n<td class=\"r\">2,962,741<\/td>\n<td class=\"r\">3,220,525<\/td>\n<td class=\"r\">3,455,800<\/td>\n<\/tr>\n<tr>\n<td>Contribution Margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,429,829<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,641,245<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>2,834,200<\/td>\n<\/tr>\n<tr>\n<td>Fixed Costs<\/td>\n<td class=\"r\">2,452,694<\/td>\n<td class=\"r\">2,452,694<\/td>\n<td class=\"r\">2,452,694<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>-$22,865<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$381,506<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<p>We now have a flexible budget that accommodates three different scenarios:<\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sales of 158,605 units resulting in a loss for the company<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sales of 172,405 upon which the master budget was prepared<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sale of 185,000 which might represent a \u201cbest case\u201d scenario<\/li>\n<\/ol>\n<p>An actual flexible budget could be prepared using two or more scenarios, although more than three might not add to the usefulness, and could be presented in much more detail. In addition, the flexible budget will only be useful within a relevant range. For instance, increasing production enough to cover 185,000 in sales may change both fixed and variable costs.<\/p>\n<p>Before we move on to compute variances, check your understanding of the flexible budget.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220608\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220608&theme=oea&iframe_resize_id=ohm220608\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-187\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Flexible Budget. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Flexible Budgeting. <strong>Authored by<\/strong>: Education Unlocked. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/JHVaey2WdPE\">https:\/\/youtu.be\/JHVaey2WdPE<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":22,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Flexible Budget\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Flexible Budgeting\",\"author\":\"Education Unlocked\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/JHVaey2WdPE\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-187","chapter","type-chapter","status-publish","hentry"],"part":33,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":8,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/187\/revisions"}],"predecessor-version":[{"id":1933,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/187\/revisions\/1933"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/33"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/187\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/media?parent=187"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=187"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=187"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/license?post=187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}