How to Estimate for a Flexible Budget

by C. Taylor

A fixed price budget is easier to calculate than a flexible budget, but it doesn't allow for variable costs. As an example, a landscaping business may have a fixed supply cost, but wages are dependent on the number of hours worked. Flexible budgets allow for such variables, which change according to necessity. In the aforementioned example, a flexible budget might be expressed as a combination of a fixed and flexible budget, such as \$2,500 plus \$10 per man-hour.

1. Add the fixed monthly costs. Include any regular costs that do not change. In the example, you might include secretary that only works a set number of hours, payments on machinery and miscellaneous supplies. If you paid your secretary \$10 per hour for 40 hours per week, four weeks per month, then her fixed cost is \$1,600. If machinery payments and supplies totaled \$900 per month, your total fixed costs would be \$2,500 per month.

2. Add all the flexible costs that change with use. In the example, if you only paid wages when you had a customer, then the cost of wages may change dramatically between months. Slow winter months might have no wages, but you might pay six full-time landscapers during the summer. In that case, your flexible costs would be the landscaper wages, such as \$10 per hour.

3. Express your flexible budget as fixed and variable costs. In the example, \$2,500 plus \$10 per man-hour allows you to calculate a variable monthly budget. On dead winter months, your cost might just be \$2,500, because you're paying no landscapers. On prime summer months with six full-time workers, your cost is \$2,500 plus \$9,600, or a total of \$12,100.

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