How a Flexible Budget Works
A flexible budget approach recognizes that a budget can be adjusted to show what costs should befor the actual level of activity. To illustrate how flexible budgets work, Victoria prepared the report in Exhibit 9–4 that shows what the revenues and costs should have been given the actual level of activity in March. Preparing the report is straightforward. The cost formula for each cost is used to estimate what the cost should have been for 1,100 client-visits—the actual level of activity for March. For example, using the cost formula $1,500 + $0.10 q, the cost of electricity in March should have been $1,610 (= $1,500 + $0.10 × 1,100).