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Hi,
Task 4 re. management accounts
The solution has identified the budget is not flexed based on actual activity/volumes.
How can you tell by looking at the actual vs budgeted that it has not been flexed?
E.g revenue and food costs are different but it could be due to a change in costs and not activity.
Your help is appreciated. Thanks
It is not very obvious!
However, when you flex a budget you have to flex ‘to/by’ something. In a manufacturing company this would usually be to the volume produced. Ideally, here we would flex to number of customers so that sales price and volume variances could be calculated but this information is not given. In the absence that it might be better to flex costs to turnover so that is sales were only 995,000 the rest of the budget would be flexed to that ‘volume’. However, they seem to be comparing costs for TO = 1m to costs for TO = 0.995m
A suggestion to make to improve the reporting is that customer-meal volume information is used to produce a proper flexed budget. If the only information you are given is as shown in Exhibit 5 you are somewhat in the dark about costs and other variances.
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