Question

The Zachary Management Association held its annual public relations luncheon in April 2017. 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 2017 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 2017
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 2017
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, Zachary Taylor, 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. Cole 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.

Answer 1

Requirement a
Flexible Budget
Operating Funds allocated				31202
Expenses
Variable costs
	Meals			24797	=1810*13.7
	Postage			4059	=4950*0.82
Total variable costs				28856
Fixed costs
	Facility			2900
	Printing			1140
	Decorations			1030
	Speaker's gift			320
	Publicity			790
Total Fixed costs				6180
Total expenses				35036
Budget Surplus(Deficiet)				-3834
Sales Variance
Since No sales price is given, It will not be possibe to calculate sales variance
However we can calculate sales margin variance which is nothing but Budget
surplus(deficiet) variannce which is as follows.
Master budget Surplus			0
Flexible budget Surplus			-3834
Variance				-3834	Unfavourable
Varianble cost variance
Master Budget Meals expenses			21783
Flexible Budget meals expenses			24797
Variance				-3014	Unfavourable
Master Budget Postage expenses			3239
Flexible budget Postage expenses			4059	-820	Unfavourable
Total variable cost variance				-3834	Unfavourable
Requirement b
				Flexible Budget		Actual Results		Variances
Operating Funds allocated				31202		31202		0	None
Expenses
Variable costs
	Meals			24797		26064		-1267	Unfavourable
	Postage			4059		4059		0	None
Total variable costs				28856		30123		-1267	Unfavourable
Fixed costs
	Facility			2900		3400		-500	Unfavourable
	Printing			1140		1140		0	None
	Decorations			1030		1030		0	None
	Speaker's gift			320		320		0	None
	Publicity			790		790		0	None
Total Fixed costs				6180		6680		-500	Unfavourable
Total expenses				35036		36803		-1767	Unfavourable
Budget Surplus(Deficiet)				-3834		-5601		1767	Unfavourable