Flexed budget
A flexed budget is the budget recalculated for the actual level of activity, using the relevant budgeted prices, rates and cost-behaviour assumptions. It provides a fairer comparison with actual results than a budget at another activity level. It does not replace actual costs with budget figures; it establishes the allowed revenue or cost for the output achieved. Distinguish this activity adjustment from revising outdated standards or assumptions for planning-variance analysis.
Worked example
Actual output is 1,200 units. At budgeted variable cost $4 per unit and fixed cost $2,000, flexed cost is $6,800. Actual $7,100 gives an adverse $300 cost difference.
Common mistake
Do not flex fixed cost automatically in proportion to output, or use actual prices when the comparison requires budgeted rates.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |