A flexible budget is a budget that adjusts to changes in the level of activity within a business. It is a useful tool for analyzing the performance of a company, as it allows managers to see how well they are meeting their budgeted goals. One way to analyze the performance of a flexible budget is to calculate the flexible budget variance, which is the difference between the actual results and the budgeted results. In this essay, we will discuss how to calculate flexible budget variance.

To calculate flexible budget variance, you will need to first determine the budgeted amount for each variable cost and fixed cost. This can be done by multiplying the budgeted level of activity by the budgeted cost per unit of activity. For example, if the budgeted level of activity is 1000 units and the budgeted cost per unit is $10, then the budgeted variable cost will be $10,000.

Once you have determined the budgeted costs for each variable and fixed cost, you can then calculate the flexible budget variance by comparing the actual results to the budgeted results. To do this, you will need to determine the actual level of activity and the actual cost per unit of activity. You can then multiply these amounts by each other to get the actual costs for each variable and fixed cost.

For example, let's say that the actual level of activity was 1100 units and the actual cost per unit was $11. The actual variable cost would be $12,100 (1100 x $11). To calculate the flexible budget variance for the variable cost, you would subtract the budgeted amount of $10,000 from the actual amount of $12,100, resulting in a variance of $2,100.

You can repeat this process for each variable and fixed cost to calculate the total flexible budget variance. Once you have calculated the total variance, you can then analyze it to see if the actual results were better or worse than the budgeted results. If the variance is positive, it means that the actual results were better than the budgeted results. If the variance is negative, it means that the actual results were worse than the budgeted results.

In conclusion, calculating flexible budget variance is a useful tool for analyzing the performance of a business. It allows managers to see how well they are meeting their budgeted goals and to identify areas where they may need to make changes in order to improve their performance. By following the steps outlined above, you can easily calculate flexible budget variance and use it to better understand the financial performance of your business.