Learning Outcomes
- Prepare a flexible budget performance report
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:
| Description | Total | |
|---|---|---|
| Price/Cost Variance | $ (344,906) | |
| Volume Variance | 116,355 | |
| Overall budget variance | $ (228,551)Double line | 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.
