All 34 Flexible Budgets questions
More in Flexible Budgets
How does the flexible budget separate the volume variance from other variances? How are flexible budgets used for control reporting? What is the flexible budget variance? What is the sales-volume variance in the context of flexible budgets? What are the limitations of flexible budgeting? How does flexible budgeting interact with absorption vs marginal costing? How can a flexible budget aid decision-making beyond control? How does flexible budgeting handle a budget prepared as a percentage of capacity? How do you separate fixed and variable elements of a mixed overhead for flexing? What is regression analysis for cost estimation and how does it improve on high-low?
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What is the difference between a static budget variance and a flexible budget variance?

Intermediate

Answer

The static budget variance is the total difference between actual results and the original fixed budget. It decomposes into the sales-volume variance (static vs flexible budget) and the flexible-budget variance (flexible budget vs actual). This split separates the effect of volume from the effect of price and efficiency.
Static variance = Sales-volume variance + Flexible-budget variance.
Real-world example The overall difference from the original budget is split into volume and controllable-performance parts.

Common follow-ups: What two variances sum to the static variance? | Why decompose it?

Variance Analysis Types of Budgets Flexible Budgets
All 34 Flexible Budgets questions