Question

The Gibson Management Association held its annual public relations luncheon in April 2017. Based on the previous year’s results, the organization allocated $25,328 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 2017 luncheon.

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

1. The meal cost per person was expected to be $12.60. The cost driver for meals was attendance, which was expected to be 1,480 individuals.
2. Postage was based on $0.60 per invitation and 3,400 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3. The facility charge is $1,800 for a room that will accommodate up to 1,600 people; the charge for one to hold more than 1,600 people is $2,300.
4. A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.

GIBSON MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April 2017
Operating funds allocated	$	25,328
Expenses
Variable costs
Meals (1,480 × $12.60)		18,648
Postage (3,400 × 0.60)		2,040
Fixed costs
Facility		1,800
Printing		1,030
Decorations		920
Speaker's gift		210
Publicity		680
Total expenses		25,328
Budget surplus (deficit)	$	0

Actual results for the luncheon follow.

GIBSON MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April 2017
Operating funds allocated	$	25,328
Expenses
Variable costs
Meals (1,700 × $13.30)		22,610
Postage (4,400 × 0.60)		2,640
Fixed costs
Facility		2,300
Printing		1,030
Decorations		920
Speaker's gift		210
Publicity		680
Total expenses		30,390
Budget deficit	$	(5,062	)

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

1. The president of the organization, Zachary Taylor, increased the invitation list to include 1,000 former members. As a result, 4,400 invitations were mailed.
2. Attendance was 1,700 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,300
3. At the last minute, Ms. Cole decided to add a dessert to the menu, which increased the meal cost to $13.3 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.

Answer 1

Answer:-

a		Master Budget	-	Flexible Budget	=	Volume Variance
	Allocated Funds	25,328		25,328		0	NONE
	Expenses:
	variable expenses
	Meals	18,648		21,420		2,772	U
	Postage	2,040		2,640		600	U
	Fixed expenses
	Facility	1,800		2,300		500
	Printing	1,030		1,030		0	NONE
	Decorations	920		920		0	NONE
	Speaker's Gift	210		210		0	NONE
	Publicity	680		680		0	NONE
	Total Expenses	25,328		29,200		3,872	U
	Surplus(Deficit)			-3,872		3,872	U
	(1) = 1,700 x $12.60= 21,420
	(2) = 4,400 x $0.60 = 2,640
	(3) = Higher charge due to higher attendance
b		Flexible Budget	-	Actual Results	=	Flexible variances
	Allocated Funds	25,328		25,328		0	NONE
	Expenses:
	variable expenses
	Meals	21,420		22,610		1,190	U
	Postage	2,640		2,640		0	NONE
	Fixed expenses
	Facility	2,300		2,300		0	NONE
	Printing	1,030		1,030		0	NONE
	Decorations	920		920		0	NONE
	Speaker's Gift	210		210		0	NONE
	Publicity	680		680		0	NONE
	Total Expenses	29,200		30,390		1.190	U
	Surplus(Deficit)	-3,872		-5,062		-1,190	U

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