Page 315 - F2 - MA Integrated Workbook STUDENT 2018-19

Budgeting

Fixed and flexible budgets

8.1 Fixed budget

This contains information on costs and revenues for one level of activity.

Where the actual level of activity is different to that expected,
comparisons of actual results against a fixed budget can give misleading
results.

8.2 Flexed budget

This shows the same information, but for a number of different levels of
activity.

This type of budget provides two key benefits:

 managers are better prepared for a range of scenarios

 variances can be based on the most suitable budget.

In budgetary control systems managers should always compare
performance against a flexed budget.

The flexed budget (budget cost allowance) is calculated as follows:

Fixed costs: no change

Variable costs:
Budgeted cost
Budgeted cost allowance = ————————— × Actual activity level
Budgeted activity level

Semi-variable costs: The fixed element will not change and the variable element
will be flexed as above.

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