Your Ask Joey ™ Answer

What is the difference between the static budget and flexible budget?

The key difference between the static budget and the flexible budget is the volume or sales units used in the projections. The static budget uses the original volume forecasted, while the flexible budget is updated for the actual volume. For example, if during May Year 1, the company budgeted 10,000 units, but actually sold 12,000 units, then the static budget would use 10,000 units and the flexible budget would use 12,000 units.

Why is removing volume from the budget vs actual analysis beneficial?

The main benefit of using actual volume in the flexible budget is that it removes the impact of volume when comparing the flexible budget to the actual results (in a budget vs actual analysis). For example, if the static budget had $1,000 of revenue and the actual revenue for the period was $1,500, then you might initially say that actual revenue was higher due to higher volumes.

However, if you updated the flexible budget for actual volumes and forecasted revenue was $1,250, then when compared to actual revenue of $1,500, volume is no longer an explanation for the variance. Instead, you will have to analyze the sales mix, pricing, etc.

What types of accounts are impacted when converting from a static to flexible budget?

Only accounts that are impacted by volume would be changed when converting the static budget to a flexible budget. This would basically just be revenue and variable cost accounts, which ultimately impact gross profit or contribution margin. Fixed costs will remain unchanged between the static and flexible budget.


Back To All Questions

You might also be interested in...

  • Write For Us

    Write For Us Submit your guest blog post! Universal CPA Review welcomes contributors to submit articles for publication on our website. Please review the following guidelines before submitting your article. Due to the high volume of submissions we receive daily, we cannot respond to each one individually. If your article is selected for publication, you...

  • A Guide to Hiring a Small Business Accountant

    Overview Your small business is thriving, sales are up, and you’re poised for a record-breaking year. Exciting times, indeed, but have you thought about the implications for tax filing or financial planning for the upcoming quarter? If these questions are on your mind, it might be time to consult a small business accountant. A skilled...

  • QuickBooks Helps Small Business Beyond Compare

    Introduction Want to work faster, smarter, and better? In today’s business environment, the myriad options for financial management solutions can overwhelm even the most seasoned entrepreneurs. Selecting the right tool for managing business finances is crucial, yet the task is often daunting due to the plethora of available options. This is where QuickBooks comes into...