Question

Describe (written, not visual) an example of how an unfavorable difference between actual and budget amounts on a static budget can become a favorable difference on a flexible budget.

Answer 1

A static budget represents the budgeted quantity of the revenue and expenses over a specific period and remains unchanged even with changes in business activity. where as a static budget, is dynamic and changes with changes in sales and production volumes.

Therefore if due to reduction in production the static budget may show unfavourable diffrence between the the actual and budgeted quantity whereas the flexible budget after being adjusted to the production level may show a favourable variation.

For Example

Revenue for 10 bats according to static budget be 100 as of $10 for each bat but the actual sales turns out to $99 for 9 bats as of 11$ for 1 bat each it shows a $1 deficit according to static budget but when adjucted to flexible budget it turns our $90 and shows a favourable variance of $9 .