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The original, flexed and actual budgets are given.
For Expenditure variance, why do we use difference of Flex budget and Actual but for Volume budget variance we are supposed to use the difference of original budget and Flexed budget? I don’t find this intuitive and is confusing; any explanation to help pls.
Thank youThe flexed budget gives the standard profit for the actual level of sales. So the difference between this and the original budget is due only to the change in the sales volume.
However the flexed budget is the standard profit for the actual sales i.e. if the selling price and the expenses were all at standard cost. The actual profit will be different because the actually expenses will be difference from standard.
Have you watched my free lectures on this where I do explain this? 🙂
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