# The flexed budget

> Northwind's cost of revenue against a budget restated at the revenue actually earned: a favorable total hiding an unfavorable cost per sale.

Source: https://lopifi.com/learn/budget-vs-actual-variance-analysis/flexed-budget
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is a flexible budget, and why flex the budget for variance analysis?** Northwind's cost of revenue against a budget restated at the revenue actually earned: a favorable total hiding an unfavorable cost per sale.

Revenue missed budget by $2,500. Cost of revenue came in $680 under budget, which reads favorable, but Northwind sold less, so of course it cost less. A [flexed budget](https://lopifi.com/md/glossary/flexed-budget) asks what cost of revenue should have been at the sales actually made: $16,380. Against that, the actual $17,000 is $620 over, an unfavorable price or mix variance hiding inside a favorable total.

|  | Amount | Variance |
| --- | --- | --- |
| Static budget | 17,680 | (680) |
| Flexed to actual revenue | 16,380 | 620 |
| Actual | 17,000 |  |

Cost of revenue, three ways.

## Where this page's rules come from

- [Wikipedia, “Variance (accounting)”](https://en.wikipedia.org/wiki/Variance_(accounting)) — Favorable and unfavorable variances — background (reference)

## Read further

- https://lopifi.com/md/calculators/contribution-margin

- **Track:** [Finance](https://lopifi.com/md/learn/finance)
- **Part of:** [Budget vs actual](https://lopifi.com/md/learn/budget-vs-actual-variance-analysis) — 5 min
- **Terms taught:** [Flexed budget](https://lopifi.com/md/glossary/flexed-budget), [Variance](https://lopifi.com/md/glossary/variance), [Cost of revenue](https://lopifi.com/md/glossary/cost-of-revenue), [Budget](https://lopifi.com/md/glossary/budget)
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