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

2. 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

3. 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

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

5. 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

6. 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

7. 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