Controllability - part 2

In this lesson

1. 0:00 Fixed and flexed budgets explained
2. 1:01 Why fixed budgets work in stable environments
3. 2:14 Flexed budgets adjust for actual activity levels
4. 3:33 How flexing improves control and fairness
5. 4:50 Assessing budgetary control statements
6. 6:17 Cost behaviour knowledge for accurate flexing
7. 7:15 When fixed budgets remain useful for control

About this lesson

This is essential for Performance Management and Strategic Business Leader papers, where you'll need to evaluate divisional performance fairly and recognise when budget adjustments are necessary. Fixed budgets work well in stable environments where actual activity matches expectations, but they become problematic when volume changes significantly. A flexed budget solves this by adjusting the original budget to reflect actual activity levels, creating a genuine like-for-like comparison. This matters because it strips out volume variances that may be outside a manager's control—like market size changes—so you can focus on what they genuinely managed. The key to flexing budgets accurately is understanding cost behaviour patterns. You need to know which costs are fixed, variable, semi-variable, or stepped, so you can scale the budget up or down correctly. Without this knowledge, your flexed budget will be unreliable. The lesson walks through a practical example showing how to evaluate statements about budgetary control, reinforcing when fixed budgets are appropriate and when flexing is essential for fair performance assessment.

Duration: 8m