Question

The Zachary Management Association held its annual public relations luncheon in April Year 2. Based on the previous year’s results, the organization allocated $31,202 of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Molly Hubbard, the treasurer, prepared the following budget for the Year 2 luncheon.

The budget for the luncheon was based on the following expectations:

1. The meal cost per person was expected to be $13.70. The cost driver for meals was attendance, which was expected to be 1,590 individuals.
2. Postage was based on $0.82 per invitation and 3,950 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3. The facility charge is $2,900 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $3,400.
4. A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.

ZACHARY MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April Year 2
Operating funds allocated	$	31,202
Expenses
Variable costs
Meals (1,590 × $13.70)		21,783
Postage (3,950 × 0.82)		3,239
Fixed costs
Facility		2,900
Printing		1,140
Decorations		1,030
Speaker's gift		320
Publicity		790
Total expenses		31,202
Budget surplus (deficit)	$	0

Actual results for the luncheon follow.

ZACHARY MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April Year 2
Operating funds allocated	$	31,202
Expenses
Variable costs
Meals (1,810 × $14.40)		26,064
Postage (4,950 × 0.82)		4,059
Fixed costs
Facility		3,400
Printing		1,140
Decorations		1,030
Speaker's gift		320
Publicity		790
Total expenses		36,803
Budget deficit	$	(5,601	)

Reasons for the differences between the budgeted and actual data follow.

1. The president of the organization, Rodney Snow, increased the invitation list to include 1,000 former members. As a result, 4,950 invitations were mailed.
2. Attendance was 1,810 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$3,400
3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $14.4 per person.
4. Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.

Required:

a. Prepare a flexible budget and compute the sales and variable cost volume variances based on a comparison between the master budget and the flexible budget.

b. Compute flexible budget variances by comparing the flexible budget with the actual results.

Complete this question by entering your answers in the tabs below.

A. Prepare a flexible budget and compute the sales and variable cost volume variances based on a comparison between the master budget and the flexible budget. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

	Master Budget - Flexible Budget = Volume Variance Allocated funds $31,202 Expenses: Variable expenses Meals 21,783 Postage 3,239 Fixed expenses Facility 2,900 Printing 1,140 Decorations 1,030 Speaker’s gift 320 Publicity 790 Total expenses 31,202 Surplus(deficit) $0

B. Compute flexible budget variances by comparing the flexible budget with the actual results. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

	Flexible Budget - Actual Results = Flexible Variances Allocated funds $31,202 Expenses: Variable costs: Meals 26,064 Postage 4,059 Fixed costs: Facility 3,400 Printing 1,140 Decorations 1,030 Speaker’s gift 320 Publicity 790 Total expenses 36,803 Surplus(deficit) $(5,601)

Answer 1

1.Preparation of Flexible Budget and Computation of Sales and Variable Cost Volume Variances:-

Particulars	Master Budget(A)	Flexible Budget(B)**	Volume Variances=(A-B)
Allocated Funds(A)	31,202	31,202	None
Expenses:-Variable Expenses
Meals	21,783	24,797 (1810*$13.70)	3014(A)
Postage	3,239	4059	820(A)
Expenses:-Fixed Expenses
Facilty	2900	2900	None
Printing	1,140	1,140	None
Decorations	1,030	1,030	NoneC
Speaker Gift	320	320	None
Publicity	790	790	None
Total Expenses(B)	(31,202)	(35,036)
Budget Surplus/(Deficiet)(A-B)	(0)	(3834)	3834(A)

**Flexible Budget considered actual units and Budgeted Cost.So,Fixed Cost remains Same Because Flexible Budget only Considered Actual Units remaining All Data of Cost is Budgeted.

2.Computation of Flexible Budget Variances by Comparing the Flexible budget with the actual va

Particulars	Flexible Budget(A)	Actual Results(B)	Flexible Variances=(A-B)**
Allocated Funds(A)	31,202	31,202	None
Expenses:-Variable Expenses
Meals	24,797 (1810*$13.70)	26,064	1267(A)
Postage	4059	4059	None
Expenses:-Fixed Expenses
Facilty	2900	2900	None
Printing	1,140	1,140	None
Decorations	1,030	1,030	None
Speaker Gift	320	320	None
Publicity	790	790	None
Total Expenses(B)	(35,036)	(36,803)
Budget Surplus/(Deficiet)(A-B)	(3,834)	(5,601)	1767(A)