Steps to Prepare a Flexible Budget

Step 1: Identify each cost as:

• Variable
• Fixed
• Semi-variable (then split into fixed + variable)

Step 2: Find variable cost per unit

For each variable item:

Example:

Direct material cost = RM15,000 for 5,000 units

RM15,000÷5,000=RM3 per unit

Step 3: Identify total fixed cost

Fixed costs stay the same at all activity levels (within relevant range).

Example:

Rent = RM4,000 per month (fixed)

Depreciation = RM5,000 (fixed)

Total fixed cost = RM4,000 + RM5,000 = RM9,000

Step 4: Prepare the flexible budget for the required activity level

For example, flexible budget at 7,000 units:

1. Sales

Selling price per unit × 7,000

2. Variable costs

Variable cost per unit × 7,000 (for each item)

3. Fixed costs

Same total as original (do not multiply by units)

Calculate:

• Total cost
• Profit = Sales – Total cost