Excel Applications for Accounting Principles
Quiz 23 :
Flexible Budgeting Flexbud
Review the worksheet FLEXBUD as indicated in the problem. Based on the information provided, create a static budget as well as flexible budget for the president and vice president of the company. The unedited worksheet provided look like the one shown below. Image - 1.A The unedited FLEXBUD worksheet is shown in the Image - 1.A.
Open the FLEXBUD worksheet. Enter formulas into the worksheet where indicated using cell references so that when the sheet would be modified, the figures gets update automatically. All needed data for formulas are available in the data section of the worksheet. For the static budget, use the planned direct labor hours in formulas and for the flexible budget, use the actual direct labor hours. After entering all the formulas, the worksheet would appear like the one shown in the image below. The obtained result in the cell E43 is -$152 as stated in the problem for check.
The table below shows the difference in the static budget and flexible budget performance report for the company. Image - 1.A It is evident from the Image - 1.A, that several areas shown different result between the two budgets. In the static budget there is a favorable variance of $1,308 but in the variable budget, there is an unfavorable variance of $152. A static budget is very useful for planning and controlling purposes and is based on projected data. Forecast can be done in advance but it does not change as volume of production changes. On the other hand, a flexible budget changes with the volume of activity. The same fixed and variable portions are used as on a static budget, but it is based on actual output and not projected output. Because of this a variable budget is more useful for performance evaluation.