Standards and budgeting

In this lesson

1. 0:00 Standards and budgeting fundamentals
2. 0:11 Understanding standard costs and budgets
3. 0:38 Fixed budgets versus flexible budgets
4. 1:05 Cost behaviour and budget planning
5. 1:31 Flexible budget worked example
6. 3:02 Flexed budgets for performance control
7. 3:31 Variance analysis and investigation

About this lesson

You'll discover how to build a flexible budget that adjusts to different activity levels, allowing you to make fair comparisons between planned and actual performance—a key skill for the PM and MA papers. The video explains that standard costs are the budgeted cost per unit, and when aggregated across expected output, they create a fixed budget. However, a flexible budget adapts to actual activity levels by adjusting variable costs while accounting for stepped fixed costs. You'll work through a practical example showing how to flex a budget from 8,000 units to 12,000 units, calculating revised profit by multiplying variable costs and revenue by actual output, then adding the adjusted fixed costs. Understanding cost behaviour—distinguishing between variable, fixed, and semi-variable costs—is essential to flexing budgets accurately. By comparing actual results against a flexed budget rather than the original fixed budget, you gain a like-for-like comparison that reveals true performance variances and highlights areas needing investigation. This approach transforms budgeting from a static planning tool into a dynamic control mechanism that supports better decision-making.

Duration: 4m