Prepare a flexible budget statement
Recalculate variable and semi-variable costs at actual activity while retaining fixed costs in the relevant range.
Section 4.3 · Budgeting and budgetary control
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
At $3 per unit, what variable cost is allowed for 500 units?
What you will learn
- Flex each cost using its behaviour
- Calculate actual-versus-flexible variances
- Interpret a variance with its activity basis
Flex costs one line at a time
For a simple cost budget, flexible budget = actual activity × standard variable cost per unit + fixed cost for the period. For a semi-variable cost, separate its fixed base from the rate that changes with activity.
Compare actual with the flexible amount: for a cost, actual cost above flexible budget is adverse and below it is favourable. Show each line before netting so managers can see where to investigate.
Explain differences with evidence
Possible causes include a changed input price, quantity per unit, labour rate, efficiency, waste, product mix, supplier condition or a cost classification assumption. A flexible-budget variance is a difference, not proof of a specific cause.
Use standards, invoices, production records and operational context. If the cost relationship or actual activity is outside the relevant range, revise the model and explain the limitation rather than forcing an unreliable comparison.
Pause and explain
Variable cost is $4/unit and fixed cost $10,000. Flex to 1,500 units.
Worked example
At 2,000 units, variable material is budgeted at $8/unit and fixed cost $6,000. Actual cost is $23,200 at output of 2,200 units. Calculate flexible budget and variance.
Show the worked solution
- Flexible material cost = 2,200 × $8 = $17,600.
- Add fixed $6,000: flexible budget = $23,600.
- Actual $23,200 is $400 below budget, favourable for cost.
Answer Flexible budget $23,600; variance $400 favourable.
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.
At 1,200 units, variable cost is $6/unit and fixed overhead $7,500. Actual output is 1,350 and actual cost $16,000. Calculate the flexible budget and variance.
Give me a hint
Recalculate variable cost at 1,350, then add fixed cost.
Compare my reasoning
- Variable allowance = 1,350 × $6 = $8,100.
- Flexible total = 8,100 + 7,500 = $15,600.
- Actual cost is $400 above budget: adverse.
$15,600 flexible budget; $400 adverse variance.
Look for these in your work
- Variable amount flexed
- Fixed amount unchanged
- Variance direction correct
A cleaning cost is semi-variable: $2,000 base plus $1.80 per room cleaned. Actual activity is 3,000 rooms and actual cost $7,650. Find the flexible budget and variance.
Give me a hint
Retain the base and multiply only the variable part by actual rooms.
Compare my reasoning
- Variable allowance = 3,000 × $1.80 = $5,400.
- Flexible budget = $2,000 + $5,400 = $7,400.
- Actual exceeds by $250, an adverse cost variance.
$7,400 flexible budget; $250 adverse.
Look for these in your work
- Base identified
- Variable portion flexed
- Variance calculated
A workshop's electricity cost rises after it adds weekend production. What data would help explain the flexible-budget variance?
Give me a hint
Separate activity, tariff, usage efficiency and equipment changes.
Compare my reasoning
- Compare actual machine hours and output with the activity basis.
- Check energy units and tariffs, including any time-of-use charge.
- Inspect machine condition, product mix and operating hours before concluding the cause.
Check activity, energy units, tariff, machine efficiency and production timing. The total variance alone cannot distinguish those causes.
Look for these in your work
- Activity basis checked
- Price and usage separated
- Operational context included
Common mistakes
- Flexing fixed costs per unit instead of total fixed cost
- Using budgeted rather than actual activity
- Calling an adverse difference proof of waste without evidence
What can you explain now?
A cost variance is adverse when actual cost is…
Compare with the explanation
Above the flexible budget for actual activity
Actual cost above its activity-adjusted allowance is adverse.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
How do you flex a semi-variable cost and label its cost variance?
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.