Question

The Vernon Management Association held its annual public relations luncheon in April Year 2. Based on the previous year’s results, the organization allocated $30,098 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 $13.50. The cost driver for meals was attendance, which was expected to be 1,570 individuals.
2. Postage was based on $0.78 per invitation and 3,850 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3. The facility charge is $2,700 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $3,200.
4. A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity

VERNON MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April Year 2
Operating funds allocated	$	30,098
Expenses
Variable costs
Meals (1,570 × $13.50)		21,195
Postage (3,850 × 0.78)		3,003
Fixed costs
Facility		2,700
Printing		1,120
Decorations		1,010
Speaker's gift		300
Publicity		770
Total expenses		30,098
Budget surplus (deficit)	$	0

Actual results for the luncheon follow.

VERNON MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April Year 2
Operating funds allocated	$	30,098
Expenses
Variable costs
Meals (1,790 × $14.20)		25,418
Postage (4,850 × 0.78)		3,783
Fixed costs
Facility		3,200
Printing		1,120
Decorations		1,010
Speaker's gift		300
Publicity		770
Total expenses		35,601
Budget deficit	$	(5,503	)

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, 4,850 invitations were mailed.
2. Attendance was 1,790 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$3,200
3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $14.2 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