The flexible budgeting equation is as follows:
(Fixed Costs) + (Variable Cost per unit * Actual Production)
= Flexible budget
Here are the definitions of each component of the equation:
* Fixed Costs: These costs remain constant regardless of the level of production or activity. Examples include rent, insurance, and salaries for administrative personnel.
* Variable Cost per unit: These costs vary directly with the level of production or activity. Common examples include raw materials, direct labor, and sales commissions.
* Actual Production: This refers to the number of units actually produced or the level of activity achieved.