What does a flexible budget performance report compare?

A flexible budget performance report serves to assess how well an organization has performed against its expectations based on actual activity levels. It adapts the budget to reflect the actual volume of output or sales, which is essential for accurate performance evaluation.

By comparing actual results with a flexible budget that aligns with real activity levels, organizations can better understand variances. This means if production or sales volumes change, the flexible budget adjusts accordingly, allowing for a fair comparison that accounts for the actual conditions under which the organization operated.

This approach is beneficial because it provides insights into operational efficiency and cost management, revealing not just whether costs were over or under budget, but also if those variances were due to actual changes in business levels. Such a detailed analysis supports better strategic decisions moving forward, enhancing financial reporting and planning.