From the course: Accounting Foundations: Budgeting

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Using the flexible budget

Using the flexible budget

From the course: Accounting Foundations: Budgeting

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Using the flexible budget

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- Instead of providing budget costs for only a single level of production or sales activity that was predicted before the operating period actually began, a flexible budget allows us to perform sensitivity analyses to determine what might happen if we vary some of our assumptions. This exercise is particularly powerful if done using a spreadsheet on a computer. So, let us continue using our Boulder View numbers for the second quarter. Recall that we budgeted for 810 rooms to be rented at a rate of 150 dollars per room. We also budgeted for variable costs of 36 dollars per room. We budgeted fixed overhead costs relating to rooms at 41,800 dollars, and Selling, General and Administrative costs for the quarter of 13,850 dollars. Now, we have the potential to rent 900 rooms during the quarter. That's our 10 rooms multiplied by 90 days in a quarter. We expect to be at 90% capacity during the second quarter, but what if we only filled 80% of capacity? What if we can get our rental rate up…

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