Flexed Budgets - Cost & Revenues

So in the Flexed budget you have a fixed cost element, do you flex this figure or simply copy it across as it is fixed so therefore doesnt change.
I have an older text book and it says it must stay the same and not be flexed howevere my tutor said in the new textbooks it tells you to flex the figure (and this was proven my another students text book) yet yesterday i done an online assesment and it didnt flex the figure.
My instinct would say not to flex it as fixed costs dont change. Can anyone confirm what the correct answer is?
Thanks
I have an older text book and it says it must stay the same and not be flexed howevere my tutor said in the new textbooks it tells you to flex the figure (and this was proven my another students text book) yet yesterday i done an online assesment and it didnt flex the figure.
My instinct would say not to flex it as fixed costs dont change. Can anyone confirm what the correct answer is?
Thanks
0
Comments
Fixed overheads remain the same regardless of the production level so they shouldn't be flexed.
If the criteria was correct, you would change a stepped-fixed cost figure (i.e. if it costs £1000 for 5000 units, and the budgeted production was 4000 units then that cost would be £1000. But if actual production was 6000 units you would need to flex it to £2000.)
I hope this helps as one of the CBT's was confusing.
I had it rammed down my throat by the books that fixed costs are always fixed, do you know why they want people to flex the fixed figure too?
Dear Omega Man and Billdoor
I hope this wasn't what they meant.
The point raised by the majority of posters here is the correct approach.
The definition of fixed costs is that they do not change directly with units produced or units sold.
The examiner for Costs and Revenues held a masterclass for lecturers at the end of November 2012. He stated that a change in the volume produced would not require a fixed cost to be flexed.
As Pearce161 has pointed out, if a cost is stepped (rather like coach hire costs for up to 35 people) then the total will increase if it goes above the step (just as a coach trip for 36 people would need a second coach).
If you flex a fixed cost, you will appear to not understand this part of the course and cannot expect to get the marks.
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Hopefully you will read this before my CRS Exam on Tuesday morning!
You stated above that the Fixed OH should stay fixed and not be flexed like the other costs but i just wondered which fixed cost you use ie the actual fixed figure or the budgeted fixed figure?
Again different papers/books say different things?
Thanks :thumbup1:
The purpose is a comparison of the budget as it would be for the actual volume (flexed budget) and the actual cost.
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cazalino
I think you should name and shame any books which are misleading.
You must read the question (task 2.4) and use a fixed budget or flex to actual output as required.
If you flex the budget, never use the actual cost as the basis of your flexed budget.
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Hi i will see if i can show you what i mean by adding pics.
(Never done this before so bear with me!)
So i have hopefully added 2 attachments on 2 seperate posts. These were taken from the practice assesments on the AAT website. As you can see on 1 they are using the budgeted figure and on the other attachment they are using the actual figures. I wasnt sure which one was correct?
Do i go with the budgeted or actual
The 2 examples you have shown only show the flexed budget and the actual results (not the original budget). As they do not show the initial budget there is nothing to suggest that the fixed overheads have changed when flexed. The values shown in the flexed column will be the values that were in the original budget.
In the first example you have posted, the actual final figures came in at exactly what was budgeted for, however in the second example, the actual fixed costs ended up as more than were budgeted for.
The budget and the actual amount can be the same (as pdf 1 shows)
Or different as in pdf 2
But [size=+1] The flexed budget is ALWAYS based on the orginal budget[/size]
cazalino - Your post at 13:21 on March 24th said:
Hopefully you will read this before my CRS Exam on Tuesday morning!
Your subsequent post on March 25th said:
Do i go with the budgeted or actual
I think you need to have a think.
Ask yourself "Do I have the knowledge and understanding needed to pass CRS?"
If you think so, go ahead and sit the exam. If you don't think you have, hold off and sit it when you are ready.
I'm not so naive to believe that you need to understand everything that you are examined on. I know a lot of established accountants who "just learned how to answer the exam questions" and in later life understood what it had all been about.
That said, I do strongly recommend understanding and knowledge over "just learning".
I have seen some postings on this discussion forum from exam candidates who try to learn how to answer the exam questions. Please try to understand these topics. It really is so much easier if you understand these topics.
If I rented a stall to sell jars of marmalade at Chichester Farmers' Market I'd face a series of costs. The stall would cost £51.00 for the day. The wages I'd expect would be £100 for the day. The marmalade would sell for £2.50 per jar and cost £1.00 per jar.
I might budget to sell 350 jars of marmalade.
Revenue ............................£875.00
Variable costs..................... £350.00
Stall rent ............................ £51.00
Wages .............................. £100.00
Profit .................................£374.00
If I sold 250 jars I'd need to flex my budget to 250 jars. That would affect my revenue and my variable costs. The rent won't be any more or less neither will my wages.
If I sold 500 jars the same would apply.
Don't flex budgeted data using any of the actual cost data. Use the actual volume sold, but not the actual price it was sold for or the actual costs incurred. The differences are what we will be looking for in the variances.
Use your own "real life" examples if you can't relate it to your job, but please try to understand this subject mattter. It really is a lot easier than learning.
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www.sandyhood.com
Thanks again x
I hope that you are out enjoying yourself
When you have a success you really must celebrate
There are too many dark days getting to terms with accountancy, you need the celebrations.
And if you remember them all the better, they brighten up the days working towards another exam.
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www.sandyhood.com