1. Flexible & Static Budgets
ACG 4361
Flexible & Static Budgets
Prepared by
Diane Tanner
University of North Florida
5-1

2. Static and Flexible Budgets2
Static Budget
Flexible Budget
Not adjusted for actual level of production
Budget that can be adjusted to various activity levels
Which is best for use in performance analysis? 2

3. 3
Static Budget 3
A budget that projects a single level of expected activity
Created prior to the start of the budgeting period
A key planning tool, but difficult to compare actual costs at a different activity level to a static budget
Why? Total variable costs change at different levels of activity, while amounts on a static budget pertain to one level of activity
The Master Budget is a static budget.

4. 4
Flexible Budgets 4
A budget that is adjusted for changes in activity such as sales volume
Recognizes the fact that total variable costs change based on the level of activity
Prepared at the end of an accounting period when the actual activity is known
Can be applied to any cost center or profit center budget
Sometimes known as a dynamic budget
Allows for preparation of more detailed variances

5. Using Budgets for Performance Evaluation5 5
Using Budgets for Performance Evaluation
Use a flexible budget to evaluate performance of managers
When comparing actual activity to budgeted activity, both activity levels will be the same.
Eliminates the problem of comparing actual costs at one activity level to budgeted costs for a different level
Provide for a greater degree of management control
Eliminates sales volume as a source of variance

6. Variances Performed at different degrees of detail6 6
Variances
Performed at different degrees of detail
Four levels ranging from level 0 through level 4
Level 0 Level 1 Level 2 Level 3 Level 4
Less detailed
More detailed
Utilize static and flexible budgets
Designation of variances is based on the effect on operating income
Favorable variances (F)
Increase operating income
Unfavorable variances (U)
Decrease operating income

7. Preparing a Static Budget7 7
Golo produces and sells bins. In May, fixed costs were budgeted at $1.20 per unit, with actual fixed costs incurred at $521. May budget and actual information follows. Prepare a static budget for May.
Sales in Units
Unit Selling Price
Unit Variable Cost
Budgeted
400
$5.20
$1.60
Actual
410
$5.15
$1.50
Use budgeted activity (400) and budgeted costs/ prices.
Sales revenue (400 × $5.20) $2,080
Variable costs (400 × $1.60)
Contribution margin ,440
Fixed costs (400 × $1.20)
Operating income $ 960

8. Preparing a Flexible Budget8 8
Golo produces and sells bins. In May, fixed costs were budgeted at $1.20 per unit, with actual fixed costs incurred at $521. May budget and actual information follows. Prepare a static budget for May.
Sales in Units
Unit Selling Price
Unit Variable Cost
Budgeted
400
$5.20
$1.60
Actual
410
$5.15
$1.50
Use actual activity (units) and budgeted costs/prices.
Sales revenue (410 × $5.20) $2,132
Variable costs (410 × $1.60)
Contribution margin ,476
Fixed costs (400 × $1.20)
Operating income $ 996
Same total cost at ALL levels of activity

9. The End