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 FLEXIBLE BUDGET
PRESENTED BY:
NAME ID
Sajid Haider Rocky 122-134-025
Shahnaj Akther 131-196-025
Md. Shamim Sarker 131-079-025
Arman Hossain 131-180-025
Flexible Budget
A flexible budget is a budget that adjusts or flexes for
changes in the volume of activity. The flexible budget is
more sophisticated and useful than a static budget,
which remains at one amount regardless of the volume
of activity.
Flexible Budgets means what? Basically, flexible
budgets means compromising or melodious of our
planning budget. You know a static planning budget
is suitable for planning but is inappropriate for
evaluating how well. If we prepare our planning
budget with flexible budget processing we can easily
create our budget eliminates. We also add or drop
something so that reduce our cost and maximum our
profit margin.
Characteristics Of Flexible Budget

 Flexible budget covers a range of activities

 Flexible budget is easy to change according to
variations of production and sales levels.
 Flexible budget facilitates performance measurement
and evaluation.
 It takes into account the changes in the volume of
activity.
 Flexible budget replaces a static budget for control.
Importance Of Flexible Budget

The usefulness or importance of a flexible budget depends very much on the

accuracy of the classification of expenses into fixed, semi-fixed and variable ones.
The important advantages of flexible budget are as follows:

 A flexible budget enables the management to analyze the deviation of actual output
from expected output.

 The management can compare actual costs at the actual volume with

the budgeted costs at the actual volume.

 The flexible budget provides a correct basis for comparison between actual and
expected costs for an actual activity.

 Flexible budget helps to fulfill the objectives of cost control as it shows where the
actual performance deviated from the planned performance.
Flexible Budget Variances

Activity Variance
Revenue Variance
Spending Variance

Activity Variance:
The difference between a revenue or cost item in the static
planning budget and the same item in the flexible budget.
An activity variance is due solely to the difference between
the level of activity assumed in the planning budget and
the actual level of activity used in the flexible budget.
Revenue variance

The difference between how much the revenue should

have been given the actual level of activity, and the actual
revenue for the period. A favorable revenue variance
occurs because the revenue is higher than expected,
given the actual level of activity for the period.
SPENDING VARIANCE
The difference between how much a cost should have
been, given the actual level of activity, and the actual
amount of the cost. A favorable spending variance occurs
because the cost is lower than expected, given the actual
level of activity for the period.
Flexible Performance Report

 A flexible budget performance report is a

management report that compares the actual revenues
and costs for a period with the budgeted revenues and
costs based on the actual sales volume.
 In other words, it’s a report that shows the different
between the actual company performance and the
budgeted performance for the actual sales volume.
Basically, it compares the flexible budget with the
actual results.
Performance report In Nonprofit Organization

 Non-profit organization usually receive a

significant amount of funding from sources other than
sales.

 Costs, the revenue in governmental and nonprofit

organizations may consist of both fixed and variable
elements. The revenue formula is:
Revenue=Quantity x Price
Performance report in cost centers
 Performance reports are often prepared for
organizations that do not have any source of outside
revenue.
 In particular ,in a large organization a performance
report may be prepared for each department-
including departments that do not sell anything to
outsiders.
Exhibit 10.1 Rick’s hairstyling
Flexible budget
For the month ended march 31
Budgeted Clint visits 1000
Revenue $180,000
Expenses:
Wages & Salaries 102,000
Hairstyling supplies 1500
Clint gratuities 4100
Electricity 1600
Rent 28500
Liability 2800
Insurances
Employee health 21300
Insurances
Miscellaneous 1400
Total Expense 163200
Net Operating Income 16800
Exhibit 10.1

Explanations

We see Rick’s hairstyling wants to prepare flexible budget. Before flexible

budget he follows static planning budget. In exhibit 10.1 we see Rick’s
hairstyling planning budget for the month ended March 31. Here
budgeted clints visit is 1000. Revenue (180*1000)= 180,000. Expenses are
wages and salaries 102,000. Hairstyling supplies 1500, Clint gratuities
4100, Electricity 1600, Rent 28500, Liability insurance 2800, Employee
health insurance 21300, Miscellaneous 1400. As total expenses are 163200.
Net operating income is 16800.
Exhibit 10.2 Rick’s hairstyling
Flexible budget
For the month ended march 31
Planning
Budget
Clint visits 1,000
Revenue $180,000
Expenses:
Wages & Salaries 102,000
Hairstyling supplies 1500
Clint gratuities 4100
Electricity 1600
Rent 28500
Liability 2800
Insurances
Employee health 21300
Insurances
Miscellaneous 1400
Total Expense 163,200
Net Operating Income $16800
 Exhibit 10.3 Rick’s hairstyling
Flexible budget
For the month ended march 31
Planning Actual Results Variances
Budget
lint visits 1,000 1,100
evenue $180,000 $194,200 $14,200 F
xpenses:
Wages & Salaries 102,000 106,900 4,900 U
airstyling supplies 1500 1620 120 U
lint gratuities 4100 6870 2770 U
ectricity 1600 1550 50 F
ent 28500 28500 0
ability 2800 2800 0
surances
mployee health 21300 22600 1300 U
surances
iscellaneous 1400 2130 730 U
otal Expense 163,200 172,970 9,770 U
et Operating Income $16800 $21230 $4430 F
Exhibit 10.3

Explanations

But in exhibit 10.2 , we see for the increase of number of the actual client
visits revenue is $194200 and total expense is 172970. So Net Operating
income is 21,230.But fact is that an increase in net operating income of
10% would have resulted in net operating income of only
18.480=(1.1*16800).But actually earned during the month. So question,
what is responsible for this better outcome?.
1)Higher price ?
2) Lower cost’s
3)Some thing else?
What ever the cause, rick would like to know the answer and then
hopefully repeat the same performance next month.
 10.7 (3) – (2)
Clint- Visits 1,000 1,100 1,100
Revenue $180,000 $18,000 $198,000 $3,800 $194,200
Expenses
Wages & 102,000 3,700 105,700 1,200 106,900
Salaries
Hairstyling 1,500 150 1,650 30 1,620
supplies
Clint 4,100 410 4510 2360 6,870
gratuities
Electricity 1600 10 1610 60 1550
Rent 28500 0 28500 0 28500
Liability 2800 0 2800 0 2800
insurances
Employee 21300 0 21300 1300 22600
health
insurances
Miscellaneous 1,400 20 1,420 710 2,130
Total expense 163,200 4,290 167,490 5,480 172,970
Net Operating $16,800 13,710 30,510 9,280 21,230
Income
 Exhibit 10.7

A Performance report combining activity, revenue and

spending variances

Exhibit 10.7 displays a performance report that combines the activity

variances with the revenue and spending variances. The report brings
together information from those two earlier Exhibits in a way that makes it
easier to interpret what happened during the period. The format of this
report is a bit different from the format of the previous reports. In that the
variances appear between the amount being compared rather than after
them.

The performance reports in exhibit 10.7 provides much more useful

information to managers. Then the simple comparison of budgeted to
actual result in exhibit 10.3. In exhibit 10.3, the effect of changes in activity
where jumbled together with the effects of how well prices were controlled
and operation were managed.
Flexible budget with multiple cost drivers
There is only one cost driver – The number of clients-
visits. In the activity based costing system we found that
more than one cost driver might be needed to adequately
explain of all the cost in an organization.
Some of the cost are fixed and some of the costs are
depend on the number of customer served. Employes
paid salary, some are paid hourly basis but not paid on
the no. of customer actually served.
In the flexible budget cost driver are listed-client visits
and hour of operation. Flexible budget based on both
client-visits and hours of operation.
 Rick’s hairstyling
Flexible budget
For the month ended march 31
Actual client
visits…………………………………………………………...................1100

Actual hours of operation…………………………………………………185

Revenue……………………………........................................... $198000

Expenses:
Wages and salaries……………………………………………………. 105700
Hairstyling supplies………………………………………………………. 1650
Client gratuities……………….................................................... 4510
Electricity………………………………………………………………………1610
Rent…………………………………………………………………………… 28500
Liability Insurance…………………….......................................... 2800
Employee health insurance…………...................................... 21300
Miscellaneous…………………………........................................... 1420
Total expense……………………........................................... 167490
Net operating income…………........................................... 30510
IN that flexible budget, two cost drivers are listed client visits and
hours of operation. Where q1 refers to client visits and q2 refers to
hours of operation. For example wages and salaries depend on
the hours of operation and its cost formula is $65,000+$220
q2.Since the salon actually operated 185 hours, the flexible budget
amount for wages and salaries is $105,700=(65000+220*1850.
The electricity cost depends on both Clint visits and the hours of
operation and its costs formula is $ 390+ $ 0.10q1 + $ 6.00 q2.
Since the actual number of Clint visits was 1100 and the salon
actually operated for 185 hours, the flexible budgets amount for
electricity is = ($ 390 + $.10 * 1100+ $ 6.* 185) = 1610.