Budgeting

Budgeting

Calculate the flexed budget and the key variances between budgeted and actual results.

There are different kinds of budgets that a firm can develop in order to set their targets. The comparison of actual and budgeted amounts will help a firm in analyzing its performance during a fiscal year. The management according to the variances can take corrective actions and ensure that the targets of the organization are achieved. The flexible is used as an evaluation tool by the firms. The flexible budget is prepared by following the steps: 1) it determines the per unit cost, 2) it defines the budgeted amount of fixed cost, 3) then it determines the actual volume of output and 4) it determines the variances between the budgeted amounts and actual results achieved. Most of the flexible budgets are prepared either at the end of the year or month because at that time actual outputs have been recorded by the firm. The Flexible budget for the consulting firm is as following:

Consulting Firm

Flexible Budget Variances

For The Month End November

 

Flexible Budget Per Unit

Flexible Budget

Actual Results

Variances

Sales Revenue

1,500 £120,000 £124,400 4,400

Variable Cost:

750

 

 

 

Labor Cost

 

£15,000 £20,210 5,210

Overhead Cost

 

£7,500 £8,170 670

Contribution Margin

750 97,500 96,020

- 1,480

Fixed Cost

 

£68,000 £68,000 -

Operating Income

 

29,500 28,020

- 1,480

Reconcile the original budget and present the relationship between the budgeted and the actual profit for the month November.

The Original budget is reconciled for the month of November and it is as following:

Consulting Firm

Reconciliation of the Original Budget

For the month of November

Sales Revenue

120,000

Variable Cost:

 

Labor Cost

15000

Overhead Cost

7500

Total Cost

22500

Contribution Margin

97,500

Fixed Cost

68000

Operating Profit

29,500

The original budget or the budgeted estimate of the firm for the month of November is a profit of 29,500 whereas the actual profit for the month is 28,020 which show that there is a negative relationship between ...