WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2011

Flexible Budget Example

Budget Comparison

Units
Revenues
Item1
Item2
Item3
Item4
Item5

13,826
10,377
23,354
10,817
27,178

111,648
67,220
71,376
92,428
277,818
68,098
69,623
50,726
351,358

171.00
282.00
178.00
263.00
113.00

Total revenue

Variable Costs
Direct materials purchased
DM1
DM2
DM3
DM4
DM5
DM7
DM8
DM9
DM10
Total DM purchased
Direct labor expense
Variable overhead expense
Variable SG&A expense
Total variable costs
Contribution margin

242,261
236,588
85,552

Actual Results
Price/Cost
Total

2.19
6.54
6.83
8.47
5.08
1.31
7.34
4.95
1.68
13.70
7.95
13.74

Fixed Costs
Fixed overhead expense
Fixed SG&A expense
Total fixed costs
Operating income

Units

$ 2,364,246
2,926,314
4,157,012
2,844,871
3,071,114
$ 15,363,557

244,509
439,619
487,498
782,865
1,411,315
89,208
511,033
251,094
590,281
4,807,423
3,318,976
1,880,875
1,175,484
11,182,758
$ 4,180,799

Flexible Budget
Price/Cost
Total

13,826
10,377
23,354
10,817
27,178

111,648
67,220
71,376
92,428
277,818
68,098
69,623
50,726
351,358

242,261
236,588
85,552

155.00
267.00
157.00
261.00
102.00

2.16
6.74
6.74
8.99
4.75
1.28
7.44
5.18
1.67
13.88
7.37
13.05

$ 2,143,030
2,770,659
3,666,578
2,823,237
2,772,156
$ 14,175,660

241,160
453,063
481,074
830,928
1,319,636
87,165
517,995
262,761
586,768
4,780,549
3,362,583
1,743,654
1,116,454
11,003,239
$ 3,172,421

Units

Static Budget
Price/Cost

14,790
12,853
24,311
12,395
31,021

124,245
74,547
77,232
102,976
293,787
72,632
75,166
57,350
371,298

239,957
234,104
95,565

155.00
267.00
157.00
261.00
102.00

2.16
6.74
6.74
8.99
4.75
1.28
7.44
5.18
1.67
13.88
7.37
13.05

Total

$ 2,292,450
3,431,751
3,816,827
3,235,095
3,164,142
$ 15,940,265

268,369
502,447
520,544
925,754
1,395,488
92,969
559,235
297,073
620,068
5,181,947
3,330,603
1,725,346
1,247,123
11,485,020
$ 4,455,245

Direct labor units = hours. Actual DL hours will typically be greater than DL hours used in production because of breaks, downtime, etc.
Variable OH is assumed to be applied on the basis of DL production hours
Variable SG&A is assumed to be applied on a per unit produced basis
Equals "Total revenue" - "Total variable costs." It is the amount left to cover fixed costs

$ 1,137,075
1,652,306
2,789,381
$ 1,391,418

Variance Analysis

$ 1,130,722
1,586,379
2,717,101
$
455,320

234,104
95,565

4.83
16.60

$ 1,130,722 Fixed OH is assumed to be applied on the basis of DL hours

1,586,379 Fixed SG&A is assumed to be applied on a per unit produced basis
2,717,101
$ 1,738,144 Equals "Contribution margin" - "Total fixed costs"

Flexible Budget Variance

Sales Volume Variance

Actual Budget Variance

Revenues
Item1
Item2
Item3
Item4
Item5
Total revenue variances
Variable Costs
Direct materials purchased
DM1
DM2
DM3
DM4
DM5
DM7
DM8
DM9
DM10
Total DM purchased
Direct labor expense
Variable overhead applied
Variable SG&A applied
Total variable costs
Contribution margin variances
Fixed Costs
Fixed overhead expense
Fixed SG&A expense
Total fixed costs
Operating income variances

$18,000,000

221,216
155,655
490,434
21,634
298,958
$ 1,187,897

(149,420)
(661,092)
(150,249)
(411,858)
(391,986)
$ (1,764,605)

Positive numbers are greater than expected, negative numbers, less than expected

71,796
(505,437)
340,185
(390,224)
(93,028)
(576,708) Negative variances are unfavorable for revenue and income

3,349
(13,444)
6,424
(48,063)
91,680
2,043
(6,962)
(11,667)
3,514
26,874
(43,607)
137,221
59,030
179,519
$ 1,008,378

(27,210)
(49,384)
(39,469)
(94,827)
(75,853)
(5,804)
(41,240)
(34,312)
(33,300)
(401,398)
31,980
18,307
(130,670)
(481,781)
$ (1,282,824)

6,353
65,927
72,280
936,099

$ (1,282,824)

(23,860) Negative variances are favorable for costs

(62,828)
(33,046)
(142,889)
15,827
(3,761)
(48,202)
(45,979)
(29,786)
(374,524)
(11,627)
155,529
(71,639)
(302,262)
(274,446) Negative variances are unfavorable for revenue and income

6,353 Negative variances are favorable for costs

65,927
72,280
(346,726) Negative variances are unfavorable for revenue and income

Budget Comparison

$16,000,000

$14,000,000

$12,000,000

Total revenue
$10,000,000

Contribution
margin
$8,000,000

Operating income
$6,000,000

$4,000,000

$2,000,000

$Actual Results

Flexible Budget

Static Budget

Notes:
1 For simplicities sake, a weighted-average cost per unit is used for actual results.
2 The flex budget takes the actual units * static budget price/cost.
3 Since overhead is applied and not actually paid as an hourly rate, the "actual rate" must be calculated by dividing the actual amount spent on overhead by
the actual direct labor hours used in production.
4 Overhead and SG&A costs will be the same for the flex budget and the static budget because they are assumed to be the same regardless of unit volume.
5 The difference between flex budget and actual results. This is a price/cost variance.

6 The difference between the static budget and the flex budget. This is a unit quantity variance.
7 The difference between the static budget and actual results. Also = Flexible Budget Variance + Sales Volume Variance.
8 The flex budget variances for DM purchased is also what is known as the purchase price variance.