A static budget compares actual results with a plan built for a different level of activity. A flexible budget restates the plan at actual volume, so you can see how much of the variance came from volume and how much from spending.
How it works
Restate the static budget at the actual level of activity, then separate the total variance into an activity (volume) variance and a spending (flexible-budget) variance.
Flexed budget (variable) = Static budget × Actual activity ÷ Budgeted activity
Flexed budget (fixed) = Static budget
Activity variance = Flexed budget − Static budget
Spending variance = Actual − Flexed budget
Total variance = Activity variance + Spending varianceCommon uses
- Department and cost-center performance reviews
- Hospital, clinic and service-line budgets driven by patient volume
- Manufacturing and operations cost control
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Budgeted activity (units, visits, days) | 10,000 |
| Actual activity | 11,200 |
| Line items | Revenue | R | V | 2,500,000 | 2,742,000 Direct labor | E | V | 820,000 | 934,500 Supplies | E | V | 410,000 | 452,800 Utilities | E | V | 60,000 | 66,100 Rent | E | F | 180,000 | 180,000 Salaried staff | E | F | 340,000 | 351,200 Depreciation | E | F | 95,000 | 95,000 |
| Total net income variance | $67,400 |
| Activity (volume) variance | $145,200 |
| Spending (flexible-budget) variance | ($77,800) |
| Flexed net income | $740,200 |
| Activity vs. budget | 12.0% |
Spending was unfavorable after adjusting for volume: costs or revenue per unit missed the budgeted rates. Variances are shown on a net-income basis: positive is favorable.
Interpreting the results
- Judge cost-center managers on the spending variance; the activity variance reflects volume they usually do not control.
- Classify semi-variable costs by their dominant behavior, or split them into fixed and variable lines.
- Use the activity measure that actually drives cost: units, patient days, visits or labor hours.
Frequently asked questions
What is the difference between a static and a flexible budget?
A static budget is prepared for one expected level of activity and does not change. A flexible budget adjusts variable revenue and costs to the actual activity level, giving a fair benchmark for what results should have been at that volume.
What does the spending variance tell me?
The spending, or flexible-budget, variance compares actual results with the flexed budget. It shows whether revenue per unit and cost per unit met the budgeted rates once volume differences are removed, which makes it the better measure of a manager’s cost control.
How should semi-variable costs be treated?
Split semi-variable costs into a fixed component and a variable rate, using historical data or the high-low method, and enter them as two lines. Treating them as fully fixed or fully variable distorts both variances.
Related calculators
- Budget vs. Actual Variance Analyzer: Line-item variances with favorable/unfavorable flags and investigation thresholds.
- Price/Volume/Mix (PVM) Variance Analyzer: Revenue bridge split into price, volume and mix effects by product.
- Contribution Margin Calculator: Contribution-format income statement, CM ratio and operating leverage.
- Zero-Based Budget Worksheet: Rank decision packages and fund them in priority order up to a spending limit.
- Cost Allocation Calculator (Direct, Step-Down, Reciprocal): Allocate service-department costs to operating departments by three methods.