Flexible

budgeting
Lecturer: Quoc Viet Phung
(MPAcc)
Learning objectives
Flexible budgeting
What’s the difference between flexible
budget and fixed budget?
Developing a flexible budget
Students will be able to develop
flexible budgets in a corporate setting
and understand the purpose of the
flexible budget.
Operation performance
analysis
Analyze the performance of the
business using the flexible budget
In groups, name 5 factors that can affect your company sales volume.
FLEXIBLE BUDGETING
Fixed budget
A Static Planning Budget is a budget that is developed at a given
level of activity for the operating period. Static budgeting plans a
budget according to a certain number according to a certain level of
activity before starting the activity in order to establish a fixed goal
to be achieved in the period.
Static Planning Budget formulas
Budgeted revenue: R (Revenue) = Qo x P
Budgeted cost: C (Cost/Expenses) = [Qo x V] + F
[V: Variable cost, F : Fixed cost]
Profit: Revenue – Expenses = [Qo x P] – [Qo x V + F]
Limitations of Fixed budget
Static budgeting is only developed for a certain production level before
the activity begins. Therefore,
❖In terms of budget, when implementing, if there is a difference
between the actual level of activity and the expected level of activity ->
an over and under budget situation for activities in the period.
❖In terms of control, when implemented, if there is a discrepancy
between the actual level of activity and the expected level of activity, it
will lead to cost fluctuations due to objective (market) and external
effects. Subjective (management, control of the administrator), so the
signs of fluctuations (the actual difference from the estimate) will not
accurately reflect the situation of costs, cost control of the managers.
 Factors
Revenue
Variable cost
Direct material cost
Direct labor
Other variable costs
Contribution margin
Fixed cost
Depreciation/Armortization
Administrative cost
Profit
Flexible budget

Flexible Budget formulas

R (Revenue) = Qi x P
C (Cost) = [Qi x V] + F
[V: Variable cost, F : Fixed cost]
Profit: R – C = [Qi x P] – [Qi x V + F]
Advantages of flexible budgeting
Flexible budgeting is prepared at various levels of activity prior to the activity or adjusted to
actual activity levels as it goes on. So,
❖In terms of budget, when implementing, there is no budget difference due to the objective
impact of changes in activity level, but only differences in standard price, standard quantity,
and costs incurred in the period, so the operating budget has eliminated objective effects
(budget fluctuations due to varying activity levels) and more accurately establishes the
budget required for the actual situation (the budget is adjusted to the actual level of activity).
❖In terms of control, because the flexible budget estimate costs have been adjusted
according to the actual activity level, the fluctuations arising in the period all stem from the
management and expense control decisions of the managers. Therefore, the fluctuations in
costs during the period will accurately reflect the results and responsibility of management
and expense control of the managers.
❖cost increase is an unfavorable sign (U), and vice versa, cost reduction is a favorable sign (F)
 Factors
Revenue
Variable cost
Direct material cost
Direct labor
Other variable costs
Contribution margin
Fixed cost
Depreciation/Armortization
Administrative cost
Profit
 Factors
Revenue
Variable cost
Direct material cost
Direct labor
Other variable costs
Contribution margin

Fixed cost
Depreciation/Armortization
Administrative cost
Profit
Which budget to use?
Static budgeting helps to identify fluctuations in
revenue and expenses from the impact of changes in
activity level during the period compared to the
forecast.
❖Flexible forecasting helps to recognize fluctuations in
revenue and expenses from the impact of the actual
situation of price and quantity norms.
❖The combination of static budgeting with flexible
budgeting helps to detect the effects of fluctuations in
activity levels; of fluctuations in price level and quantity
norm when implemented.
What is the current discount trend in Viet Nam? Examples?
 Factors
Revenue

Variable cost

Direct material cost

Direct labor
Other variable costs
Contribution margin
Fixed cost

Depreciation/Armortization
Administrative cost
Profit
Some common mistakes
When using flexible budgeting to evaluate performance, costs are technically divided
into variable and fixed costs, and then calculate and adjust variable and fixed costs
according to each activity level, indicating the fluctuations caused by activities (cost
changes due to changes in output) and corresponding fluctuations in revenue and
costs (changes due to unit selling prices, norms, cost limits).

However, this assumption is sometimes incorrect, since there are some costs that we
do not properly adjust for, for example, there are cost items that can have both
variable and fixed cost characteristics but only adjusted as a variable cost, so the total
cost is either increased by a percentage as the activity level increases or as a fixed
cost, not adjusted as the activity level changes.