Definition: A flexible budget performance report is a management report that compares the actual revenues and costs for a period with the budgeted revenues and costs based on the actual sales volume. In other words, it’s a report that shows the different between the actual company performance and the budgeted performance for the actual sales volume. Basically, it compares the flexible budget with the actual results.
What Does Flexible Budget Performance Report Mean?
This report is prepared at the end of an accounting period by management to see if there are any major differences between the estimated budgeted numbers that were created at the beginning of the period and the actual ending numbers. This is a key tool because it allows management to analyze the areas of the business that are meeting their budget goals and the areas or departments that need improvement.
The report process starts by gathering the actual performance information from the period. Assume Jack’s Guitar Factory produces 1,000 guitars this year and had material costs of $250,000. This means Jack’s unit cost was $250. At the beginning of the period, Jack’s management set a materials budget for $200 a guitar. The flexible budget performance report takes the budgeted amount per unit and multiplies it by the actual number of units produced ($200 x 1,000) and compares this budgeted amount to the actual amount.
Jack’s report would list flexible budget costs of $200,000 and actual costs of $250,000. This means their costs were $50,000 over what they wanted them to be. The flexible budget performance report would place a U next to this total to indicate it is an unfavorable variance. Performance areas that operate better than originally estimated are marked with an F for favorable variance.
The full report looks very similar to a multiple period comparative income statementwith variance indicated in the right column.