9 - Flexible budgeting Flashcards
what is a fixed budget
original budget set up for budgeted sales and production
what is a flexible budget
budget which is designed to change as volume of activity changes
what is a flexed budget
uses original budget figures but for actual sales and production
advantages of flexible budgets
- at the planning stage it can be useful to know effects if actual differs from prediction so contingency plans can be drawn up
- actual compared with budget to be used as a control procedure
what are budget variances
differences between flexible budget and actual results
what is the volume variance
fixed budget vs the flexed budget
quantifies the difference in costs/profit that is due to changes in volume of output
what is the expenditure variance
flexed budget vs actual results
meaningful for cost control, measure of what managers should have achieved given production vs actually achieved
how to find direct material total budget costs in flexed budget
- find cost per unit by dividing DM costs by output and sales
- if the figures are the same then multiply this by the production and sales you are finding
how to find direct labour (semi variable) total budget costs in flexed budget
use the high low method to find v cost per unit:
1. use output and sales as activity and DL costs to find the v cost per unit using high/low
2. find fixed costs by substituting
3. do v cost/unit x production and sales trying to find
4. + total fixed costs to then get labour costs
how to find total selling and distribution overheads budget costs in flexed budget
find cost per unit and see if they match - selling/distr overheads / output amount
if they match, multiply by production levels you are finding
when do you use the high low method
when its a semi variable cost
aka, when cost per unit comes out differently for different output levels
how to find flexed budget profit
- find contribution for budget output
- multiply this by the amount needed to get to actual output
- minus the fixed costs
= the profit
