Budgeted Cost of Sales

(Schedule 6)
Marketing and Administrative
Expense Budget
(Schedule 7)
Cash Budget
(Schedule 8)
Budgeted Income Statement
(Schedule 9)
 Budgeted
Statement of Financial Position
(Schedule 10)
FLEXIBLE BUDGETING
 The budgets that have been presented to the first
part of this chapter were essentially static in
nature. A static budget has two characteristics:

1. it is geared toward only one level of activity

2. actual results are always compared with
budgeted costs as the original budget activity level.
 Fixed budgeting is appropriate only if a company
can estimate its operating volume within close
limits and if the costs are behaving predictably.
Few companies are fortunate enough to fall into
this group. As a result of these factors, a fixed or
static budget is not adequate.

 It is also an alternative to the fixed budget; a

flexible budget adjusts revenues , costs and
expenses to the actual volume experienced and
compares theses amounts to actual results.
Flexible budget incorporate changes in volume to
provide a valid basis of comparison with actual
cost.
 The basic steps in preparing a flexible budget are
a follows:
1. determine the relevant range over which
activity is expected to fluctuate during the coming
period.
2. Analyze the costs that will be incurred over
the relevant range in order to determine cost
behavior patterns (variable, fixed or mixed).
3. Separate the costs by behavior, and determine
the formula for variable and mixed costs, as
discussed in chapter 11.
4. Using the formula for the variable portion of
the costs, prepare a budget showing what costs will
be incurred at various points throughout the
relevant range.
 Fixed and Flexible
Budget Variances Compared