# How to Create a Flexible Budget Performance Report

A flexible budget performance report contrasts actual expenses with a flexible budget that adjusts to changes in sales or manufacturing outputs. This report is more realistic than a static budget, which assumes fixed figures for all expenses.

### Key Facts

1. Identify the categories: List all the categories in which expenses were accrued. This could include sales revenue, variable costs, contribution margin, fixed costs, and operating income.
2. Gather actual expenses: In the next column, list the actual expenses for each category. These are the real costs incurred during the specified period.
3. Prepare the flexible budget: Create a flexible budget using the actual level of production instead of the budgeted activity. This means adjusting the budgeted figures based on the actual sales or manufacturing outputs. Calculate the flexible budget amounts for each category.
4. Calculate the budget variance: Next to the actual expenses, include the relevant figures from the flexible budget. Calculate the difference between the actual expenses and the flexible budget for each category. This difference is the budget variance.
5. Analyze the variances: Review the budget variances for each category. Positive variances indicate that the actual expenses were lower than the flexible budget, while negative variances indicate that the actual expenses exceeded the flexible budget. Analyze the reasons behind these variances and identify any areas of inefficiency or improvement.
6. Summarize the performance report: Present the budget variances and their analysis in a clear and organized manner. You can use tables or charts to summarize the information. Include a summary of the overall budget variance, which shows the total variance between the actual results and the flexible budget.

## Identify the Categories

• List all expense categories, such as sales revenue, variable costs, contribution margin, fixed costs, and operating income.

## Gather Actual Expenses

• Record the actual expenses for each category during the specified period.

## Prepare the Flexible Budget

• Adjust the budgeted figures based on actual sales or manufacturing outputs. Calculate flexible budget amounts for each category.

## Calculate the Budget Variance

• Determine the difference between actual expenses and the flexible budget for each category.

## Analyze the Variances

• Review variances for each category. Positive variances indicate lower actual expenses, while negative variances indicate higher actual expenses. Identify reasons for variances and areas for improvement.

## Summarize the Performance Report

• Present budget variances and analysis in a clear and organized manner. Use tables or charts to summarize the information. Include a summary of the overall budget variance.

### Conclusion

A flexible budget performance report is a valuable tool for evaluating financial performance and identifying areas for improvement. By considering actual expenses and adjusting the budget accordingly, businesses can gain a more accurate understanding of their financial position and make informed decisions.

## FAQs

### What is a flexible budget performance report?

A flexible budget performance report compares actual expenses to a flexible budget that adjusts to changes in sales or manufacturing outputs. It helps businesses evaluate financial performance and identify areas for improvement.

### What are the steps to create a flexible budget performance report?

The steps include identifying expense categories, gathering actual expenses, preparing the flexible budget, calculating budget variances, analyzing variances, and summarizing the performance report.

### What is the purpose of a flexible budget performance report?

A flexible budget performance report provides a more realistic assessment of financial performance compared to a static budget. It helps businesses understand how well they are meeting their financial goals and identify areas where they can improve efficiency.

### What are some common reasons for budget variances?

Budget variances can occur due to changes in sales volume, production costs, or other factors. Positive variances indicate lower actual expenses than budgeted, while negative variances indicate higher actual expenses.

### How can businesses use a flexible budget performance report to improve their financial performance?

By analyzing budget variances, businesses can identify areas where they are overspending or underperforming. This information can help them make informed decisions to improve efficiency, reduce costs, and increase profitability.

### How often should a flexible budget performance report be prepared?

The frequency of preparing a flexible budget performance report depends on the business’s needs and the level of detail desired. Some businesses may prepare the report monthly, quarterly, or even more frequently.

### Who is responsible for preparing a flexible budget performance report?

Typically, the finance or accounting department is responsible for preparing the flexible budget performance report. However, other departments may also be involved in providing data and analysis.

### What are some best practices for creating a flexible budget performance report?

Best practices include using accurate and up-to-date data, calculating variances correctly, and presenting the information in a clear and concise manner. Additionally, businesses should regularly review and analyze the report to identify trends and make informed decisions.