Budget Methodologies CMA Part 1 A flexible budget prepared in addition to the master budget that is used exclusively for reporting on variances other than those due to sales volume differences allows management to focus on the variances that may be caused by production or administrative problems that need attention. A flexible budget takes the variable revenues and costs as they are planned in the master budget and adjusts the master budget amounts to what the budgeted amounts would have been if the actual sales volume had been used in preparing the budget. Note that in a flexible budget, only the variable revenues and costs are adjusted, because only variable revenues and costs change with changes in sales volume. Fixed costs are fixed costs, and they do not change with changes in sales volume. Therefore, fixed costs in the flexible budget are exactly the same as the fixed costs in the static budget. Flexible budgeting and use of a standard costing system go together. One is not meaningful without the other. Here is an example of actual results alongside the static budget (the master budget) and the flexible budget prepared for the actual volume: Actual Static Flexible Rlllyitl Byl:!gllt Byl:!gl:!; Units sold 20,000 24,000 20,000 Revenues $2,500,000 $2,880,000 $2,400,000 Variable costs Direct materials 1,243,200 1,440,000 1,200,000 Direct manufacturing 396,000 384,000 320,000 labor Variable manufactur- 261,000 288,000 240,000 ing overhead Total variable costs 1,900,200 2,112,000 1,760,000 Contribution margin 599,800 768,000 640,000 Fixed costs :i7Q,QQQ :i:i2,QQQ :i:i2,QQQ Operating income $ 29800 $ 216 000 $ 88 000
Posted on: Mon, 10 Mar 2014 09:11:23 +0000