Cost and Management Accounting · Budgets and Budgetary Control

Flexible Budget and Budgetary Control Numericals for CA Inter

Updated 4 October 2026 · Fact-checked

A flexible budget shows costs and profit at several activity levels by separating fixed, variable and semi-variable costs. To solve it, split semi-variable costs, find variable cost per unit, keep fixed cost constant in total, build a column for each level, then compare actuals with the budget at actual activity.

Understand Flexible Budget and Budgetary Control Numericals

A fixed budget is prepared for one level of activity. If actual output differs, comparing actual cost with that budget is unfair. A factory that makes 12,000 units will naturally spend more than a budget made for 10,000 units.

A flexible budget fixes this. It is a budget designed to change with the level of activity. It shows what costs should be at each output level. This works because costs behave differently.

Variable cost: changes in total with activity, constant per unit (materials, direct wages on piece rate).
Fixed cost: constant in total within the relevant range, falls per unit as output rises (rent, supervisor salary).
Semi-variable cost: has a fixed part and a variable part (telephone with rental plus call charges, maintenance).

The key step is to split semi-variable cost into fixed and variable parts. Then total cost at any level = fixed cost + variable cost per unit × units. Sales, cost and profit can be shown side by side for each level, such as 60%, 80% and 100% capacity.

Budgetary control compares actual results with the budget and finds variances. For a fair comparison, you flex the budget to the actual activity level first. The difference between flexed budget and actual is the real cost variance, which management can control.

Key rules to remember

Total cost at any level: Total cost = Fixed cost + (Variable cost per unit × Units); Fixed cost stays constant in total within the relevant range.
Variable cost per unit: Variable cost per unit = Total variable cost ÷ Units at that level; It stays constant per unit at all levels.
Splitting semi-variable cost (high-low): Variable rate = (Cost at high level − Cost at low level) ÷ (High activity − Low activity); Fixed part = Cost at high level − Variable rate × High activity; Use when two cost-activity points are given.
Flexed budget for a new level: Flexed variable cost = Budgeted variable cost × (Actual activity ÷ Budgeted activity); Fixed cost unchanged; Do not scale fixed cost, unless a step increase is stated.
Activity level in units: Units = Capacity % × Full capacity units; Convert percentage levels to units before computing.
Variance: Variance = Flexed budget − Actual (cost: actual higher is adverse; profit/sales: actual lower is adverse); State Favourable or Adverse.

How to solve Flexible Budget and Budgetary Control Numericals questions

Use this order for any flexible budget or control question.

1Read the activity levels given and convert percentages to units or hours using full capacity.
2Classify every cost as fixed, variable or semi-variable. Note any step-fixed cost that changes at a given level.
3Split each semi-variable cost using the data given (stated split, or two points with the high-low method).
4Compute the variable cost per unit for each variable item, and the fixed amount for each fixed item.
5Draw columns for each level. Fill sales, variable costs, contribution, fixed costs and profit, row by row.
6If actuals are given, flex the budget to the actual activity, then compute variances line by line.
7Mark each variance Favourable or Adverse, and add a one-line comment on the main cause.

Quickest way: Per-unit rate plus fixed block

When to use it: Use for MCQs and for written answers with many cost lines and limited time.

For MCQs, ask only: which costs change with activity? Keep fixed cost constant and scale only variable cost. This eliminates options that scale everything.
Write one line per cost as 'rate per unit' or 'fixed ₹'. Do this once, then multiply by each level.
Compute the total fixed cost once and reuse it in every column.
Check the answer: per-unit total cost must fall as activity rises, because fixed cost spreads over more units.
In the written answer, show the semi-variable split as a small working note. Examiners give step marks for it.
Present a neat table-like layout with the heading, level, and variance labelled F or A.

Common mistakes in Flexible Budget and Budgetary Control Numericals

Scaling fixed cost with activity.
Students apply the same percentage change to every line.
Fix: Mark each cost F or V first. Only V items change in total.
Treating semi-variable cost as fully variable or fully fixed.
It seems quicker than splitting it.
Fix: Always split it into fixed and variable parts using the data or the high-low method.
Comparing actual cost with the original fixed budget.
Students forget the purpose of budgetary control.
Fix: Flex the budget to actual activity first, then compute variances.
Wrong variable rate in the high-low method.
The activity difference is taken in the wrong unit or levels are not converted.
Fix: Convert percentages to units or hours before dividing the cost difference by the activity difference.
Ignoring step-fixed costs.
The question mentions that a cost rises beyond some level, but it is read as plain fixed.
Fix: Underline such conditions and apply the higher fixed amount only in the relevant columns.
Forgetting F or A on variances.
Students stop once the figure is computed.
Fix: Cost: actual above flexed budget is Adverse. Sales/profit: actual below flexed budget is Adverse.

Worked examples

Example 1

A company's full capacity is 10,000 units. At 60% capacity, the costs are: materials ₹3,00,000; direct wages ₹1,80,000; both variable. Factory overhead is semi-variable: ₹1,10,000 at 60% and ₹1,30,000 at 80%. Administration overhead is fixed at ₹50,000. Selling price is ₹150 per unit. Prepare a flexible budget at 60% and 80% capacity.

Show the solution

Units: 60% = 6,000; 80% = 8,000.
Materials per unit = 3,00,000 ÷ 6,000 = ₹50. Wages per unit = 1,80,000 ÷ 6,000 = ₹30.
Factory overhead variable rate = (1,30,000 − 1,10,000) ÷ (8,000 − 6,000) = ₹10 per unit. Fixed part = 1,10,000 − 10 × 6,000 = ₹50,000. Check at 80%: 50,000 + 80,000 = 1,30,000.
At 60%: Sales = 6,000 × 150 = ₹9,00,000. Materials ₹3,00,000; wages ₹1,80,000; variable overhead ₹60,000. Variable cost = ₹5,40,000. Contribution = ₹3,60,000. Fixed: factory ₹50,000 + admin ₹50,000 = ₹1,00,000. Profit = ₹2,60,000.
At 80%: Sales = 8,000 × 150 = ₹12,00,000. Materials ₹4,00,000; wages ₹2,40,000; variable overhead ₹80,000. Variable cost = ₹7,20,000. Contribution = ₹4,80,000. Fixed = ₹1,00,000. Profit = ₹3,80,000.

Answer: Profit is ₹2,60,000 at 60% capacity (6,000 units) and ₹3,80,000 at 80% capacity (8,000 units). Semi-variable factory overhead is ₹50,000 fixed plus ₹10 per unit.

Example 2

A department's budget for 5,000 units: variable cost ₹4,00,000, fixed cost ₹1,50,000. Actual output was 6,000 units and actual cost was ₹6,40,000 (variable ₹5,05,000, fixed ₹1,35,000). Compare actual with the flexed budget and state variances.

Show the solution

Variable cost per unit = 4,00,000 ÷ 5,000 = ₹80.
Flexed variable cost at 6,000 units = 6,000 × 80 = ₹4,80,000.
Fixed cost stays at ₹1,50,000. Flexed total = 4,80,000 + 1,50,000 = ₹6,30,000.
Variable variance = 4,80,000 − 5,05,000 = ₹25,000 Adverse.
Fixed variance = 1,50,000 − 1,35,000 = ₹15,000 Favourable.
Total variance = 6,30,000 − 6,40,000 = ₹10,000 Adverse. Check: 25,000 A − 15,000 F = 10,000 A.

Answer: Flexed budget cost is ₹6,30,000 against actual ₹6,40,000, so the total variance is ₹10,000 Adverse. It is made up of ₹25,000 Adverse on variable cost and ₹15,000 Favourable on fixed cost. Comparing with the original budget of ₹5,50,000 would wrongly show ₹90,000 adverse.

Exam tips

Show the semi-variable split as a separate working note. It carries marks even if a later figure is wrong.
Read the capacity levels carefully. Some questions give a percentage of actual capacity, others give hours or units directly.
In MCQs, check whether a cost is fixed per unit or fixed in total. This is a common trap.
Always write F or A next to each variance and add a one-line reason if the question asks for comments.
Keep the layout consistent: sales, variable costs, contribution, fixed costs, profit. It lets you cross-check totals quickly.

Practice questions from Budgets and Budgetary Control

Flexible Budget and Budgetary Control Numericals in other exams

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

Flexible Budget and Budgetary Control Numericals: frequently asked questions

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

A fixed budget is made for one activity level and does not change when actual output differs. A flexible budget is prepared for several activity levels, or adjusted to the actual level. It gives a fairer basis for comparing actual results.

How do I treat semi-variable cost in a flexible budget?

Split it into a fixed part and a variable part. If two cost-activity points are given, use the high-low method to find the variable rate, then derive the fixed part. Then treat each part as usual.

Does fixed cost change in a flexible budget?

Fixed cost stays the same in total within the relevant range. Per unit it falls as activity rises. It changes only if the question states a step increase at a certain level.

When do I flex the budget in budgetary control?

Flex it when actual activity differs from budgeted activity. Compute the budgeted cost for the actual output, then compare it with actual cost. The difference shows how well costs were controlled.