Flexible Budget

Flexible budget provides logical comparison. The actual cost at the actual activity is compared with the budgeted cost at the time of preparing a flexible budget. Flexibility recognizes the concept of variability.

Flexible budget helps in assessing the performance of departments in relation to the activity level achieved. Cost ascertainment is possible at different levels of activities. It is also useful in fixation of price and preparation of quotations.


With the help of the following given expenses, prepare a budget for production of 10,000 units. Prepare flexible budgets for 5,000 and 8,000 units.

CostsPrice per Unit(Rs.)
Variable Factory Overheads15
Fixed Factory Overheads (Rs 50,000)5
Variable Expenses (Direct)6
Selling Expenses (20% Fixed)20
Distribution Expenses (10% fixed)10
Administrative Expenses ( Rs 70,000)7
Total cost of Sale per unit158


ParticularsOutput 5000 unitsOutput 5000 units
Variable or Product Expenses:    
Direct Variable Overheads6.0030,0006.0048,000
Prime Cost101.005,05,000101.008,08,000
Factory Overheads    
Variable Overheads15.0075,00015.001,20,000
Fixed Overheads10.0050,0006.2550,000
Work Cost126.006,30,000122.259,78,000
Fixed Administrative Expenses14.0070,0008.7570,000
Cost of Production140.007,00,000131.0010,48,000
Selling Expenses    
Fixed 20% of Rs.20/-8.0040,0005.0040,000
Variable Cost 80% of Rs.20/-16.0080,00016.001,28,000
Distributed Expenses    
Fixed 10% of Rs.10/-2.0010,0001.2510,000
Variable 90% of Rs.10/-9.0010,0001.2510,000
Total Cost of Sale175.008,75,000165.2512,98,000


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