Flexible-budget variance
Flexible-budget variance is the difference between actual results and the flexible budget at the same activity level, attributable solely to price and efficiency rather than volume.
FrameworkFlexible budgeting
See it move
The split-bar chart shows a total flexible-budget variance of €1,350, divided into a price variance of €630 and an efficiency variance of €720. The note anchors the figures: 800 actual units were produced, with 1,260 hours worked at €12.50 per hour against a standard of 1,200 hours at €12.00, so both the hourly rate paid and the quantity of hours consumed deviated from standard, each contributing a separate adverse component to the total.
The formula
Variables
- Budgeted fixed cost + (Standard variable cost per unit × Actual output) (€)
Positive value is adverse for costs, favourable for revenues. Excludes the volume effect (captured by the sales-volume variance).
Price variance = (Actual price − Standard price) × Actual input quantity. Efficiency variance = Standard price × (Actual input quantity − Standard input quantity for actual output).
Check yourself
A production department budgets fixed overhead of €18,000 and variable overhead of €4 per machine-hour. The static budget assumed 3,000 machine-hours. In the period, 3,400 actual machine-hours were recorded and total overhead incurred was €33,200. What is the flexible-budget variance for overhead?