Question

This is for my Healthcare Finance Class..... I am having a hard time figuring out what numbers to take from what budget when I am asked to prepare a flexible budget. I have the following Simple budget and Actual Budget numbers:

             Simple Budget        Actual Budget   Variance $    Variance %              

Costs

        Variable:

           Therapist                            $22,000                 $21,280               $720                 3.27%

           Supplies                              $2,200                   $1,795                 $405                 18.41%

           Rent                                     $9,850                  $9,710                 $140                 1.42%

           Repairs/cleaning               $4,800                  $5,080                ($280)              -5.83%

        Fixed:

         Management                     $5,500                   $5,125                 $375                 6.81%

           Laundry                             $200                       $220                    ($20)                 -10%

            Utilities                              $1,400                   $1,505                ($105)              -7.5%

                                                                    

Total Costs                                     $45,950               $44,715               $1,235              2.69%

Revenue                                         $55,000             $53,000                ($2,000)           -3.64%

Profit                                             $9,050               $8,285                ($765)              -8.45%

Answer 1

When the question asked you to prepare the flexible budget,you should multiply the variable cost per unit by actual production.

A flexible budget adjusts the simple budget/Master budget for your actual sales or production volume.For example,your simple budget may have assumed that you would produce 5000 units,however actual production is 5100 units.The flexible budget rearranges the master budget to reflect this new number(5100 units),making all the appropriate adjustments to sales and expenses based on the unexpected change in volume.