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What is Flexible budget explain it with example.

Explanation of Flexible budget with example? 

 Performance evaluation in budgeting is sometimes difficult when actual activity is different from the activity which is originally budgeted.so in order to measure these differences, flexible budget is used and implemented.

Definition=

Flexible budget can be defined as the calculation in which original budget  and actual budget is compared with each other in order to find out changes in original and actual budget. these differences are known as variances which shows the variations between these budgets

These variances have two types
(i) favorable
(ii) unfavorable

for example if original budget exceeds actual budget it will be unfavorable condition. and if actual budget lower than original budget then its favorable condition .
The favorable and unfavorable conditions both depends upon the activities and costs of items and services.Favorable condition is denoted with F and Unfavorable condition is denoted with U.

With the help of flexible budget variances financial experts makes decision in order to avoid future losses for the companies.because variances shows both the favorable and unfavorable conditions.

 Example of Flexible Budgeting is given below :

                                                                       Flexible Budget

Original budget
Actual budget
Variances
Units Activity
20,000
16,000
4,000 U
Variable costs



Indirect. Labor
50,000
42,000
8,000 F
Indirect. Material
35,000
32,000
3,000 F
Power
8,000
6,000
2,000 F
Fixed costs



Depreciation
25,000
25,000
0
Insurance
2,000
2,000
0
Total overhead costs
1,40,000
1,23,000
17,000
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