Flexible Budget Because it Adjusts for Variances
1. It is a flexible budget because it adjusts for variances in volume of activity. The budget is prepared based on three levels of activity and this includes enrollment of 66, 100, and 120 students.
2. Total revenue per student is the same despite student enrollment and it is determined to be $ 6,063 per student
3. The total expense per student is $ 4,518 for 120 students, $ 5,283 for 100 students and $ 7,646 for 66 students.
4. All the expenses seem necessary since they are costs that are incurred in starting up and running a business. There are selling costs such as advertising, capital expenses such as computer equipment and operational costs such as salaries, field trips and maintenance and repairs.
5. The school is viable because it is generating income despite the level of activity. Income received increases with number of enrollment thus a high enrollment will provide high levels of profit. Also the total costs incurred in the startup can be repaid from net income.