Answer:
SORIA COMPANY
Clothing Department
Flexible Budget Report
For the Month Ended October 31, 2017
See attachment.
In flexible budgeting, the fixed costs are assumed to be constant within the relevant range. Only the variable costs are flexed.
Workings:
1. Sales Commission = $1,680/8,400 x 9,000 = $1,800
2. Advertising = $1,176/8400 x 9,000 = $1,260
3. Travel Expense = $4,032/8,400 x 9,000 = $4,320
4. Free Samples = $1,680/8,400 x 9,000 = $1,800
Explanation:
The flexible budget is one that flexes the activity level or volume in order to recognize changes that may arise. This changes the base volume of the variable costs.
To achieve this, the value under the static budget is divided by the static budget volume and multiplied by the flexed budget volume(s).
In this case, when the budget was flexed from the static sales volume of 8,400 to 9,000 in accordance with the actual volume achieved, the favorable value was increased from $1,188 to $1,800 more than 50% increase.
The implication is that a flexible budget helps to better evaluate performance than its opposite, the static budget.
