Management Accounting · Budgetary control and reporting

Fixed and Flexed Budgets: How to Flex a Budget

Updated 11 October 2026 · Fact-checked

A fixed budget is set for one planned activity level and does not change. A flexed budget restates the budget to the actual activity level. You keep fixed costs the same, scale variable costs per unit, then compare with actual results. This gives a fair variance.

Understand Fixed and Flexed Budgets

A fixed budget is prepared for one level of activity, for example 10,000 units. It stays the same even if the business actually makes 12,000 units. It is useful for planning and for setting overall targets.

The problem comes in control. Suppose you planned 10,000 units but made 12,000. Actual variable costs will be higher than budget simply because you made more. A comparison of actual with the fixed budget shows an adverse cost variance, but it says nothing about efficiency. You are comparing different activity levels.

A flexed budget fixes this. You take the budgeted cost behaviour and recalculate the budget for the actual activity level. Variable costs change in proportion to activity. Fixed costs stay at the original budget figure within the relevant range. Semi-variable costs are split into a fixed part and a variable part first.

You then compare actual results with the flexed budget. The difference is a true performance variance, because both figures are at the same activity level. The difference between the original fixed budget and the flexed budget is the effect of the volume change.

In the exam, you are usually asked to calculate a flexed figure, or the variance against it. Sales revenue is flexed too, because it is variable with sales volume.

Key formulas to remember

Budgeted variable cost per unit: Budgeted variable cost per unit = Budgeted variable cost ÷ Budgeted activity; Use the original budget and its original activity level.
Flexed variable cost: Flexed variable cost = Budgeted variable cost per unit × Actual activity; Activity can be units, hours or sales volume, whichever the cost depends on.
Flexed fixed cost: Flexed fixed cost = Original budgeted fixed cost; Fixed costs are not flexed, assuming activity stays in the relevant range.
Flexed semi-variable cost: Fixed element + (variable rate per unit × Actual activity); Split the cost first, for example using the high-low method.
Variance against flexed budget: Variance = Flexed budget figure − Actual figure (for costs); A cost lower than flexed budget is favourable (F). A higher cost is adverse (A). For revenue, actual above flexed budget is favourable.

How to solve Fixed and Flexed Budgets questions

Use this method for any flexing question, whether you must calculate one figure or a whole statement.

1Read the question and identify the budgeted activity level and the actual activity level.
2List each cost and revenue line and classify it as variable, fixed or semi-variable.
3Work out the budgeted rate per unit (or per hour) for each variable item, using the original budget.
4Calculate the flexed figure: rate × actual activity for variable items. Keep fixed items at the original budget. Split semi-variable items first.
5Total the flexed budget, including flexed profit or contribution if needed.
6Compare each actual figure with its flexed figure. Mark each variance as favourable (F) or adverse (A).
7Check that your flexed budget used the actual activity level, then answer exactly what was asked.

Quickest way: Rate times actual, fixed stays put

When to use it: Use this in Section A number entry or multiple choice questions where you need one flexed figure or one variance.

Divide the budgeted cost by budgeted units to get the rate.
Multiply the rate by actual units. This is your flexed figure.
If the item is fixed, skip steps 1 and 2 and use the original budget.
Subtract to find the variance and check whether the answer should be F or A.
Check the answer is sensible: flexed variable cost should move in the same direction as activity.

Common mistakes in Fixed and Flexed Budgets

Flexing fixed costs along with variable costs.
You apply one scaling factor to the whole budget to save time.
Fix: Classify each line first. Only variable costs and revenue change with activity. Fixed costs stay at the original budget.
Comparing actual results with the original fixed budget and calling the variance performance.
It is the easiest comparison, and the budget is already in front of you.
Fix: Flex the budget to actual activity first. Compare actual with flexed budget to judge cost control.
Forgetting to split a semi-variable cost.
The cost appears as a single figure, so it looks variable or fixed.
Fix: Find the fixed and variable parts, using the information given or the high-low method. Flex only the variable part.
Using actual cost per unit instead of budgeted cost per unit to flex.
Actual figures feel more current.
Fix: Always take the rate from the original budget. The flexed budget shows what costs should have been.
Getting favourable and adverse the wrong way round.
The rule differs for costs and for revenue.
Fix: For costs, actual below flexed budget is favourable. For revenue and profit, actual above flexed budget is favourable.
Flexing on the wrong activity base.
Some costs depend on machine hours or labour hours, not units produced.
Fix: Check what each cost is driven by. Convert units to hours if the budget rate is per hour.

Worked examples

Example 1

A company budgeted to produce 5,000 units with direct materials of $40,000, direct labour of $30,000 and fixed overheads of $25,000. It actually produced 6,000 units. Actual costs were direct materials $50,000, direct labour $34,000 and fixed overheads $26,000. Calculate the flexed budget and the variances.

Show the solution

Budgeted materials rate = $40,000 ÷ 5,000 = $8 per unit. Flexed materials = $8 × 6,000 = $48,000.
Budgeted labour rate = $30,000 ÷ 5,000 = $6 per unit. Flexed labour = $6 × 6,000 = $36,000.
Fixed overheads are not flexed, so the flexed figure stays at $25,000.
Total flexed cost = $48,000 + $36,000 + $25,000 = $109,000.
Materials variance = $48,000 − $50,000 = $2,000 adverse.
Labour variance = $36,000 − $34,000 = $2,000 favourable.
Fixed overhead variance = $25,000 − $26,000 = $1,000 adverse.
Total actual cost = $50,000 + $34,000 + $26,000 = $110,000. Total variance = $109,000 − $110,000 = $1,000 adverse. Check: 2,000 A + 2,000 F + 1,000 A = 1,000 A.

Answer: Flexed budget: materials $48,000, labour $36,000, fixed overheads $25,000, total $109,000. Variances: materials $2,000 A, labour $2,000 F, fixed overheads $1,000 A, total $1,000 A.

Example 2

A department budgeted for 2,000 machine hours. The budgeted cost of power was $9,000 for the period, and it is a semi-variable cost. At 1,000 hours the power cost was budgeted at $6,000. Actual machine hours were 2,500 and actual power cost was $11,000. Calculate the flexed budget for power and the variance.

Show the solution

Variable cost per hour = ($9,000 − $6,000) ÷ (2,000 − 1,000) = $3 per hour.
Fixed element = $9,000 − (2,000 × $3) = $9,000 − $6,000 = $3,000.
Flexed power cost at 2,500 hours = $3,000 + (2,500 × $3) = $3,000 + $7,500 = $10,500.
Variance = flexed budget − actual = $10,500 − $11,000 = $500.
Actual cost is higher than the flexed budget, so the variance is adverse.

Answer: The flexed budget for power is $10,500. The variance is $500 adverse.

Exam tips

In Section A, read whether the question asks for a flexed figure or a variance. Many wrong answers come from stopping one step early.
For multiple response questions, check each statement separately. Remember fixed costs do not change in a flexed budget and a fixed budget cannot show a true performance variance.
Write the rate per unit on your scratch paper before multiplying. It prevents slips in number entry questions.
In Section B, set out the flexed budget in a clear column next to the actual figures. Then label each variance F or A.
Check the activity base. If the budget is per machine hour but you are given units, convert before flexing.

Practice questions from Budgetary control and reporting

Fixed and Flexed Budgets in other exams

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

Fixed and Flexed Budgets: frequently asked questions

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 activity level. This makes the comparison with actual results fair.

How do you flex a budget in ACCA MA?

Find the budgeted rate per unit for each variable item. Multiply by actual activity. Keep fixed costs at the original budget, and split semi-variable costs before flexing.

Why do we compare actual results with the flexed budget?

Both figures are then at the same activity level. The variance shows how well costs were controlled, not just the effect of higher or lower volume.

Do fixed costs ever change in a flexed budget?

Normally they do not, within the relevant range of activity. If the question says fixed costs step up at a certain level, you must follow that information.