How to flex a budget
When output differs from the plan, the original budget is not a fair yardstick. Flex it to the actual volume first.
Task 1Why the original budget misleads2 questions
The original budget is a fixed budget: it is set for one level of output. Larkfield's budget for June is for 2,000 candles.
In June Larkfield made and sold 2,300 candles. More candles need more wax and more labour, so costs above the original budget are not a sign of waste.
A flexed budget restates the budget for the actual number of units. It shows what the income and the costs should have been at that volume.
Task 2Flex the lines that change with volume3 questions
Task 3Fixed costs and the flexed profit4 questions