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Management Accounting · Budget preparation

Budget Flexing and Limiting Factors in ACCA MA

Updated 11 October 2026 · Fact-checked

A limiting factor is the resource that stops a business doing more than it plans. With one scarce resource, rank products by contribution per unit of that resource and allocate it in that order. A flexed budget restates a fixed budget at the actual activity level so you compare like with like.

Understand Budget Flexing and Limiting Factors

Every budget starts with a question: what limits us? Usually it is sales demand. Sometimes it is a scarce resource such as labour hours, machine hours or materials. This is the limiting factor (also called the principal budget factor or key factor). You must find it first, because every other budget is built around it.

If only one resource is short, do not rank products by contribution per unit. A product with a high unit contribution may use a lot of the scarce resource. Rank by contribution per unit of the limiting factor. Then make the highest-ranked product first, up to its maximum demand, and move down the list until the resource runs out.

If two or more resources are scarce, ranking is not enough. You need a linear programming approach: write the constraints and objective, then find the best mix. At this level you are expected to understand the idea and the basic set-up, not to solve large problems.

A fixed budget is set for one planned activity level and is not changed. A flexible budget is recalculated for the actual activity level. Variable costs move with activity. Fixed costs stay the same within the relevant range. Comparing actual results with a fixed budget at a different activity level gives misleading variances. Comparing them with a flexed budget isolates real cost performance.

Key formulas to remember

Contribution per unit
Selling price per unit − variable cost per unit
Use variable costs only. Ignore fixed costs when ranking products.
Contribution per unit of limiting factor
Contribution per unit ÷ units of scarce resource used per unit
Rank products highest to lowest on this figure when one resource is scarce.
Flexed variable cost
Budgeted variable cost per unit × actual activity level
Equivalent to budgeted variable cost ÷ budgeted activity × actual activity.
Flexed fixed cost
Budgeted fixed cost (unchanged)
Fixed costs are not flexed within the relevant range. Stepped costs need care.
Flexed budget variance
Flexed budget figure − actual figure (for costs: favourable if actual is lower)
For revenue, favourable if actual is higher than flexed budget.

How to solve Budget Flexing and Limiting Factors questions

Use this order for any limiting factor or flexing question.

  1. 1Read the question to see which task it is: limiting factor ranking, multiple scarce resources, or flexing a budget.
  2. 2For ranking, calculate contribution per unit for each product using variable costs only.
  3. 3Divide each contribution by the scarce resource used per unit and rank the products.
  4. 4Allocate the scarce resource in rank order, producing up to maximum demand, until it runs out. Make the last product partially if needed.
  5. 5Calculate total contribution, then deduct fixed costs for profit if asked.
  6. 6For flexing, split each cost into variable and fixed. Flex only the variable costs and revenue to actual activity.
  7. 7Compare the flexed budget with actual and label each variance favourable or adverse.

Quickest way: Rank, allocate, check

When to use it: Use in objective test questions on one scarce resource where you must pick the optimal plan or total contribution.

  1. Write a mini table: product, contribution per unit, resource per unit, contribution per resource unit.
  2. Rank the products and ignore fixed costs.
  3. Allocate resource using maximum demand for the top product first.
  4. Multiply units by unit contribution for the total.
  5. Check the total resource used equals the amount available.

Common mistakes in Budget Flexing and Limiting Factors

  • Ranking products by contribution per unit instead of per unit of scarce resource.

    Unit contribution is the first figure you calculate, so it looks like the answer.

    Fix: Always divide by the scarce resource used per unit before ranking.

  • Including fixed costs when working out contribution or ranking.

    Students confuse contribution with profit.

    Fix: Use selling price less variable cost only. Deduct fixed costs once, at the end.

  • Flexing fixed costs along with variable costs.

    Students scale every line by the activity ratio.

    Fix: Keep fixed costs at budget level. Flex only variable costs and revenue.

  • Ignoring maximum demand when allocating the scarce resource.

    Students give all the resource to the top-ranked product.

    Fix: Cap each product at its demand limit, then pass the remaining resource to the next rank.

  • Comparing actual results with the original fixed budget and calling the difference a cost variance.

    The fixed budget is the only budget shown in the question.

    Fix: Flex the budget to actual activity first. Only then is the variance a fair measure of cost control.

Worked examples

Example 1

A company makes products A and B using one scarce resource, machine hours, limited to 1,200 hours. A: selling price $30, variable cost $18, 2 hours per unit, maximum demand 400 units. B: selling price $40, variable cost $22, 3 hours per unit, maximum demand 300 units. Find the plan that maximises contribution and the total contribution.

Show the solution
  1. Contribution per unit: A = 30 − 18 = $12. B = 40 − 22 = $18.
  2. Contribution per machine hour: A = 12 ÷ 2 = $6. B = 18 ÷ 3 = $6.
  3. Both products rank equally, so any mix that uses all 1,200 hours gives the same contribution.
  4. Check with A first: 400 units use 800 hours. The remaining 400 hours make 400 ÷ 3 = 133.33 units of B.
  5. Contribution = 400 × 12 + 133.33 × 18 = 4,800 + 2,400 = $7,200.
  6. Check: 1,200 hours × $6 = $7,200.

Answer: Total contribution is $7,200 for any mix that uses all 1,200 hours, because both products earn $6 per machine hour.

Example 2

A budget for 1,000 units shows: sales $50,000; direct materials $12,000; direct labour $8,000; fixed overheads $10,000. Actual output and sales were 1,200 units. Actual sales were $59,000, materials $14,900, labour $9,400 and fixed overheads $10,500. Materials and labour are fully variable. Prepare the flexed budget and calculate the profit variance against it.

Show the solution
  1. Budget per unit: sales $50, materials $12, labour $8.
  2. Flex to 1,200 units: sales = 1,200 × 50 = $60,000. Materials = 1,200 × 12 = $14,400. Labour = 1,200 × 8 = $9,600.
  3. Fixed overheads stay at $10,000.
  4. Flexed profit = 60,000 − 14,400 − 9,600 − 10,000 = $26,000.
  5. Actual profit = 59,000 − 14,900 − 9,400 − 10,500 = $24,200.
  6. Variances: sales $1,000 adverse (59,000 vs 60,000); materials $500 adverse (14,900 vs 14,400); labour $200 favourable (9,400 vs 9,600); fixed overheads $500 adverse.
  7. Total = −1,000 − 500 + 200 − 500 = $1,800 adverse. Check: 26,000 − 24,200 = 1,800.

Answer: The flexed profit is $26,000 and actual profit is $24,200, so the variance against the flexed budget is $1,800 adverse.

Exam tips

  • Before ranking, check whether demand is limited. If total demand uses less than the resource available, there is no scarce-resource problem.
  • In multiple response questions, check the contribution per scarce unit for every product, not just the top two.
  • For flexing questions, write the variable cost per unit first. It prevents scaling fixed costs by mistake.
  • Number entry: be careful with partial units and rounding. Round only at the end, and give the unit requested.

Practice questions from Budget preparation

Budget Flexing and Limiting Factors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Budget Flexing and Limiting Factors: frequently asked questions

What is a limiting factor in ACCA MA?

A limiting factor is any resource that restricts the activity of an organisation, such as sales demand, labour hours, machine hours or materials. It is the first thing you identify when preparing budgets. All other budgets are built around it.

What is a flexed budget?

A flexed budget is the original budget recalculated at the actual activity level. Variable costs and revenue are adjusted for actual volume, while fixed costs stay unchanged. It lets you compare actual and budget at the same volume.

What is the difference between a fixed budget and a flexible budget?

A fixed budget is set for one activity level and does not change. A flexible budget is adjusted to the actual level of activity. Flexible budgets give fairer variances and better control.

How do you budget with more than one limiting factor?

Ranking by contribution per unit of one resource no longer works. You use linear programming: define the constraints and the contribution objective, then find the best mix of products. In the exam you are usually asked to understand the set-up rather than solve complex cases.