Chapter 7 Flexible budgets Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

Flexible budgets Static budget: prepared for one level of planned activity. Flexible budget: covers a range of activity within a business. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

Cost behavior: The more knowledge of cost behavior, the more accurate the budgeting process. Fixed costs: in total remain constant in the short run within a given range of activity. Variable costs: in total vary as the level of activity changes. Semi-variable costs: have a fixed and a variable component. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

Flexible budget equation Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

Statement of financial performance (applying cost behavior principles) Anshar Manufacturing   $ Sales Less variable costs Contribution margin Less fixed costs Net profit Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks  

Flexible budget analysis Activity volume variance: shows what portion of the variance was due to the actual volume being different from the desired volume as per master budget. Volume levels may be based on: Number of units sold Professional hours Machine hours Student contact hours Flexible budget variance: shows the variance when the actual volume achieved is used to recalculate the budget figures Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

Summary Static budget variance: Difference between actual results and master budget figures. Activity volume variance: Difference between master budget figures and budgeted figures recalculated for actual volume achieved. Flexible budget variance: Difference between actual results and budgeted figures recalculated for actual volume achieved. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks