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Verification : MMV + MYV = MUV Rs. 130 (F) + Rs. 570 (F) = Rs. 700 (F) Flexible Budget and Standard Costing Budgets are prepared for different functions of business such as production, sales etc. Actuals results are compared with the budgets and control is exercised. However, fixed budgets are not suited for cost control because all costs are related to one level of activity. Flexible budgets are prepared in order to overcome the limitations, they are recast on the basis of volume of activity. Flexible budgets is as an effective tool for cost control because costs are analysed by behaviour and variable costs are allowed as per activity attained. Although budgetary control is concerned with origin of expenditure at functional levels, in practice flexible budgets are well suited with standard costing. Accordingly when flexible budgetary control operates with standard costing fixed expenses, variable expenses and semi variable expenses are computed either on the basis of ratio method or variance method for different levels of activity, Illustration: 14 The Managing Director of your company has been given the following statement showing the results for August 2003 : Master Budget Actual Variance Units Produced and Sold 10,000 9,000 (1.000) Rs. Rs. Rs. Sales 40,000 3,50,000 (5,000) Rs. Rs. Rs. Direct Material 10,000 9,200 800 Direct Wages 13,100 1,900 Variance Overheads 5,000 4,700 300 Fixed Overhead 5,000 4,900 100 Total Cost 35,000 31,900 3,100 Net Profit 5.000 3,100 (1,900) Figures in parentheses indicate adverse variances. 7 15,000 p9 632 A Textbook of Financial Cost and Management Accounting The Standard Costs of the product are as follows: Per unit Rs. Direct Material (1kg @ Re.1 Per kg) 1.00 Direct Wages (1 hour @ Re. 1.50) 1.50 Variable Overhead (1 hour @ Re.0.50) 0.50 Actual results for the month showed that 9,800 kgs of material were used and 8,800 labour hours were recorded. Required: (a) Prepare a flexible budget for the month and compare with actual results and (b) Calculate the variances which have arisen