Flexible Budgets (Cambridge International A-Level Accounting)

Exam board Cambridge International · A-LevelUpdated 2026-04-17

Spec point — the benefits of flexible budgeting over fixed budgeting how to prepare a flexible budget statement

Flexible Budgets

What are flexible budgets?

Fixed budgets do not change even if the actual figures are different
When the actual units sold and produced are different from the budgeted units, then a flexible budget is needed
There is no value in comparing the actual results to the budgeted results when the level of units is different
In a flexed budget, the key budgeting information will reflect the actual output
This is particularly relevant when preparing variance analysis
- This is used in standard costing
It is more meaningful for managers to use a flexible budget as a means of comparison to the actual data

How to prepare a flexible budget?

STEP 1 Change the budgeted revenue to match the actual units:
- Budgeted revenue ÷ budgeted units × actual units
STEP 2 Change the budgeted direct material to match the actual units:
- Budgeted direct material ÷ budgeted units × actual units
STEP 3 Change the budgeted direct labour to match the actual units:
- Budgeted direct labour÷ budgeted units × actual units
STEP 4 Change the budgeted fixed overheads to match the actual units:
- Budgeted fixed overheads ÷ budgeted units × actual units

Worked Example Laptop limited make and sell laptops. Here is the information regarding the fixed budget and actual results for one month:

Fixed budget Actual results
Production and sales (units) 20 000 28 000
Sales revenue $ 9 000 000 11 200 000
Direct material $ 2 400 000 3 920 000
Direct labour $ 2 000 000 1 960 000
Fixed overheads $ 1 000 000 1 260 000
Total cost 5 400 000 7 140 000
Total profit 3 600 000 4 060 000

Prepare the flexible budgeted statement based on the information provided

Answer

Change the budgeted revenue

($9 000 000 ÷ 20 000) × 28 000 = $12 600 000

Change the budgeted direct material

($2 400 000 ÷ 20 000) × 28 000 = $3 360 000

Change the budgeted direct labour

($2 000 000 ÷ 20 000) × 28 000 = $2 800 000

Change the budgeted fixed overheads

($1 000 000 ÷ 20 000) × 28 000 = $1 400 000

Flexible budget

$
Revenue 12 600 000
Direct material 3 360 000
Direct labour 2 800 000
Fixed overhead 1 400 000
Total cost 7 560 000
Total profit 5 040 000

	Fixed budget	Actual results
Production and sales (units)	20 000	28 000
Sales revenue $	9 000 000	11 200 000

Direct material $	2 400 000	3 920 000
Direct labour $	2 000 000	1 960 000
Fixed overheads $	1 000 000	1 260 000
Total cost	5 400 000	7 140 000

Total profit	3 600 000	4 060 000

	Flexible budget $
Revenue	12 600 000

Direct material	3 360 000
Direct labour	2 800 000
Fixed overhead	1 400 000
Total cost	7 560 000

Total profit	5 040 000

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Exam Questions Flashcards

	Fixed budget	Actual results
Production and sales (units)	20 000	28 000
Sales revenue $	9 000 000	11 200 000

Direct material $	2 400 000	3 920 000
Direct labour $	2 000 000	1 960 000
Fixed overheads $	1 000 000	1 260 000
Total cost	5 400 000	7 140 000

Total profit	3 600 000	4 060 000

Fixed budget

Actual results

Production and sales (units)

20 000

28 000

Sales revenue $

9 000 000

11 200 000

Direct material $

2 400 000

3 920 000

Direct labour $

2 000 000

1 960 000

Fixed overheads $

1 000 000

1 260 000

Total cost

5 400 000

7 140 000

Total profit

3 600 000

4 060 000

	Flexible budget $
Revenue	12 600 000

Direct material	3 360 000
Direct labour	2 800 000
Fixed overhead	1 400 000
Total cost	7 560 000

Total profit	5 040 000

Flexible budget

$

Revenue

12 600 000

Direct material

3 360 000

Direct labour

2 800 000

Fixed overhead

1 400 000

Total cost

7 560 000

Total profit

5 040 000