Reconcile flexible budgeted profit with actual profit
Bridge budgeted profit at actual activity to actual profit using revenue and cost differences.
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
A cost saving of $300 is favourable. How does it affect profit, other things equal?
What you will learn
- Use a flexible budget at actual activity
- Reconcile favourable and adverse revenue and cost effects
- Explain why reconciliation does not prove causes
Use profit effects, not just cash changes
A statement reconciling flexible-budgeted profit with actual profit starts with budgeted profit for the actual activity or sales volume. Add favourable revenue or profit effects and subtract adverse effects; for costs, adverse amounts reduce profit and favourable savings increase it.
Keep a consistent statement basis: if sales volume has already been flexed to actual units, do not count the same volume effect twice. Follow the question's treatment of selling-price, cost and other variances.
Check the endpoint
The reconciliation should end at actual profit for the same period, calculated from actual revenue and expenses. A mismatch often indicates a sign error, omitted item or inconsistent activity basis.
After the arithmetic, investigate causes using price, quantity, quality, supplier, labour and sales evidence. The net can conceal offsetting variances and does not by itself show whether a decision improved the business.
Pause and explain
Flexible profit is $8,000; an adverse cost variance is $500. What profit follows if no other effects exist?
Worked example
Flexible-budget profit is $25,000. Sales price is $2,000 favourable, production costs net $1,600 adverse and selling expenses are $600 adverse. Find actual profit.
Show the worked solution
- Add the favourable sales-price effect: 25,000 + 2,000 = $27,000.
- Subtract adverse cost effects: 27,000 − 1,600 − 600.
- Actual profit = $24,800.
Answer Actual profit is $24,800.
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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.
Flexible profit $18,000; sales volume $1,200 F; materials $700 A; labour $300 F; overhead $900 A. Calculate actual profit.
Give me a hint
Add favourable profit effects and deduct adverse cost effects.
Compare my reasoning
- Favourable total = 1,200 + 300 = $1,500.
- Adverse cost total = 700 + 900 = $1,600.
- Actual profit = 18,000 + 1,500 − 1,600 = $17,900.
$17,900 actual profit.
Look for these in your work
- Favourable effects added
- Adverse costs deducted
- Endpoint calculated
Budgeted profit at actual sales is $46,000; sales price variance $3,200 A; production cost variance $1,500 F; administration expense $800 A. Reconcile actual profit.
Give me a hint
A favourable cost variance increases profit; an adverse selling-price variance lowers it.
Compare my reasoning
- Start at $46,000.
- Subtract $3,200; add $1,500; subtract $800.
- Actual profit = $43,500.
Actual profit is $43,500.
Look for these in your work
- Revenue effect direction correct
- Cost saving added
- Expense overspend deducted
The reconciliation reaches actual profit, but a large favourable materials variance offsets a large adverse sales-volume effect. What should a manager examine?
Give me a hint
A net total can hide the causes and longer-term effects of both results.
Compare my reasoning
- Check material grade, usage, quality and whether the saving is sustainable.
- Investigate sales demand, price, stock availability and customer retention.
- Assess contribution and capacity effects before repeating purchasing or sales decisions.
Investigate each offsetting result and its relationship to quality and demand; do not judge the period solely from the net profit bridge.
Look for these in your work
- Material cause investigated
- Sales cause investigated
- Decision based on linked evidence
Common mistakes
- Subtracting a favourable profit effect
- Adding an adverse cost variance to profit
- Counting sales-volume effects twice
What can you explain now?
A favourable sales-price variance usually affects profit by…
Compare with the explanation
Increasing profit before considering linked effects
A higher price raises revenue on the relevant units, but demand and other costs still matter.
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Make it stick
How should favourable and adverse effects enter a flexible-budget profit reconciliation?
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.