Answer to Question #205023 in Management for Lisa

Question

What is the meaning and use of a flexed budget?

Answer 1

A flexed budget is a budget prepared to indicate the revenues, costs and profits that should have been expected from the actual level of production and sales. It is created at the end of the budget period based on the actual activity level for a period.

When using standard costing, a flexed budget becomes a core part of financial control as it provides answers to crucial questions such as "What should our financial results be at the actual activity level?" Also, the use of flexed budgets makes variances much more meaningful thus enhancing performance management.