Compare fixed and flexible budgets
Distinguish a budget at one planned activity level from a budget adjusted to actual activity.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.3 covers budgetary control, linked master-budget schedules, spreadsheets, limiting factors, flexible budgets, reconciliations, behavioural effects and supported decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topics 2.1–2.2 for cost behaviour, contribution and budgeting foundations. For each schedule, label the period, units, price, inventory policy, timing assumptions and opening balance before calculating.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Within its relevant range, a total variable cost generally…
What you will learn
- Explain fixed and flexible budgets
- Explain why flexing improves comparison
- Classify costs by behaviour for the relevant range
The activity basis matters
A fixed budget is prepared for one planned activity level. A flexible budget adjusts the budgeted amounts for the activity actually achieved, using cost behaviour assumptions, so that actual costs can be compared on a more like-for-like basis.
Variable cost changes with activity in the relevant range; fixed cost stays constant in total over that range; a semi-variable cost includes a base amount and a variable element. State the range and period because costs can change outside those assumptions.
Flexing improves evaluation, not prediction
If actual output differs from plan, comparing actual cost with an unadjusted fixed budget can mix the effect of volume with the effect of control. Flexing shows what costs were expected for the actual activity level.
A flexible budget is only as reliable as its cost classifications and rates. It does not automatically explain a difference, remove inefficiency or capture quality, mix or external changes.
Pause and explain
Fixed overhead is $9,000 in the relevant range. If output rises, how does the total fixed budget usually change?
Worked example
Variable cost is $5 per unit and fixed cost is $12,000. Compare fixed-budget cost at 2,000 units with a flexible budget at 2,400 units.
Show the worked solution
- Fixed budget at 2,000: variable 2,000 × $5 = $10,000 plus $12,000 = $22,000.
- Flex to 2,400: variable 2,400 × $5 = $12,000 plus unchanged fixed $12,000.
- Flexible budget total = $24,000.
Answer The fixed-budget total is $22,000; the flexible budget at 2,400 units is $24,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Variable cost is $7/unit; fixed cost $15,000. Flex the budget from 1,800 to actual output of 2,100 units.
Give me a hint
Keep fixed cost constant and recalculate variable cost at actual units.
Compare my reasoning
- Variable at 2,100 = 2,100 × $7 = $14,700.
- Add fixed $15,000.
- Flexible budget total = $29,700.
$29,700 flexible budget at 2,100 units.
Look for these in your work
- Actual activity used
- Variable cost flexed
- Fixed cost retained
A fixed budget at 3,000 units includes variable cost $4.50/unit and fixed cost $18,000. Actual output is 3,400. Calculate the fixed-budget total and flexible-budget total.
Give me a hint
The fixed budget uses planned units; the flexible budget uses actual units.
Compare my reasoning
- Fixed budget: 3,000×4.50 + 18,000 = $31,500.
- Flexible budget: 3,400×4.50 + 18,000 = $33,300.
- The $1,800 difference is the expected variable-cost effect of 400 more units.
Fixed budget $31,500; flexible budget $33,300.
Look for these in your work
- Fixed-budget activity correct
- Flexible activity correct
- Volume effect interpreted
Actual cost exceeds the fixed budget, but output also exceeded plan. Why could a flexible budget change the performance interpretation?
Give me a hint
It adjusts expected variable costs to the actual activity level.
Compare my reasoning
- More output normally requires more variable input and cost.
- The fixed budget does not reflect that additional activity.
- Compare actual cost with the flexible budget to isolate a remaining difference for investigation.
The fixed budget can make extra output look like overspending. Flexing sets the expected cost for actual activity, leaving a more relevant comparison.
Look for these in your work
- Output change recognised
- Variable cost flexed
- Control comparison improved
Common mistakes
- Changing fixed cost per unit while keeping the total fixed cost constant
- Comparing actual cost with the original activity budget after output changes
- Assuming the cost behaviour relationship holds at every output level
What can you explain now?
What does a flexible budget adjust for?
Compare with the explanation
The actual activity level
Flexing changes budgeted amounts according to activity and cost behaviour.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
State one benefit and one limitation of comparing actual costs with a flexible budget.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.