CHAPTER 18 ExAple 18A: Variance Analysis Our variance analysis example and practice exercise use the flexible budget approach. A flexi ble budget is one that is created using budgeted revenuc and/or budgeted cost amounts. Aflex- ible budget is adjusted, or flexed, to the actual level of output achieved (or perhaps expected to be achieved) during the budget period. A flexible budget thus looks toward a range of activity or volume (versus only one level in the static budget). Examples of how the variance analysis works are contained in Figure 18-1 (the elements), in Figure 18-2 (the composition), and in Figures 18-3 and 18-4 (the calculations). Study these examples before undertaking the Practice Exercise. We have restated Exhibit 18-2 in a worksheet fomat for purposes of this example. The new format appears as follows. (The numbers have not changed.) Actual Cost S920,000 Less: Flexible Budget 990,000 70,000 Price Variance (favorable) Budgeted Cost S987,500 Less: Flexible Budget 990,000 S(52,500) Quantity Variance (unfavorable) S Net Variance (favorable) 17500