Hello I am having some problems with figuring out how to do a flexible budget.
I have the actual cost incurred which is correct. How do I come up with the flexible budget? The scenario gave me two cost reports that where calculated for the end year (year 2006 & 2007). The actual cost for 2007 was higher than 2006. Am I suppose to incorporate the two cost reports? The question is :

Prepare a performance report for 2007 using the flexible budget approach and both measures of activity. Assume inflation was insignificant. (Note: To evaluate administrative expenses, first determine the flexible budget amounts for the three elements of administrative expenses. Then compare the total of the three elements to the actual administrative expense of $41,650.)

Please Help!!

Um... I'm not sure exactly what they are expecting in that particular problem. I can kind of tell you what a flexible budget is though. It's based on the idea that you could have different production levels, which of course are going to show different results. It also involves the differences between fixed and variable costs.

For variable costs things would change when production changes. So you may have production levels (units) of 10,000, 12,000 and 14,000. And those variable costs will change based on that. The fixed costs will remain the same.

In order to get those numbers, they sometimes make you take a set of figures based on one production level and you have to start dividing the costs by the units to get the per unit, and then apply that to the other production levels.

Yeah, I could see them having you base that on actual statements from the past (they do, after all, have to get those numbers from somewhere), but I'm not quite sure exactly what they're giving you or what they are wanting. I also do not understand the statement about the administrative costs. I don't know what is meant by "three elements." Terms like that are pretty meaningless out of context and I'd have to see the info.

I don't know if that really helps or not.