Question

The Westwood Management Association held its annual public relations luncheon in April 2013. Based on the previous year’s results, the organization allocated $27,938of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Andrea Cole, the treasurer, prepared the following budget for the 2013 luncheon.

	The budget for the luncheon was based on the following expectations.
1.	The meal cost per person was expected to be $13.10. The cost driver for meals was attendance, which was expected to be 1,530 individuals.
2.	Postage was based on $0.70 per invitation and 3,650 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3.	The facility charge is $2,300 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $2,800.
4.	A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.

WESTWOOD MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April 2013
Operating funds allocated	$	27,938
Expenses
Variable costs
Meals (1,530 × $13.10		20,043
Postage (3,650× 0.70)		2,555
Fixed costs
Facility		2,300
Printing		1,080
Decorations		970
Speaker’s gift		260
Publicity		730
Total expenses		27,938
Budget surplus (deficit)	$	0

  

Actual results for the luncheon follow.

  

WESTWOOD MANAGEMENT ASSOCIATION Actual Results for Public Relations Luncheon April 2013
Operating funds allocated	$	27,938
Expenses
Variable costs
Meals (1,750 × 13.8)		24,150
Postage (4,650 × 0.70)		3,255
Fixed costs
Facility		2,800
Printing		1,080
Decorations		970
Speaker’s gift		260
Publicity		730
Total expenses		33,245
Budget deficit	$	(5,307	)

	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, 4,650 invitations were mailed.
2.	Attendance was 1,750 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,800
3.	At the last minute, Ms. Cole decided to add a dessert to the menu, which increased the meal cost to $13.8 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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Negative amount should be indicated by a minus sign.)

Answer 1

	Master Budget	Actual		Flexible Budget
Expenses
Variable costs
Meals (1,530 × $13.10	$             20,043	$      24,150	(1750*13.8)	$                22,925	(1750*13.1)
Postage (3,650× 0.70)	$                2,555	$        3,255	(4650*0.7)	$                  3,255	(4650*0.7)
Fixed costs
Facility	$                2,300	$        2,800		$                  2,800
Printing	$                1,080	$        1,080		$                  1,080
Decorations	$                   970	$            970		$                      970
Speaker’s gift	$                   260	$            260		$                      260
Publicity	$                   730	$            730		$                      730
Total Expenses	$             27,938	$      33,245		$                32,020
Budgeted cost per person	27,938/1530)	33245/1750		32020/1750
Budgeted cost per person	$                18.26	$        19.00		$                  18.30
Total Vaiable Cost	$             22,598	$      27,405		$                26,180
Variable cost per person	$                14.77	$        15.66		$                  14.96

Sales Volume variance= (Actual number of persons-budgeted number of persons)*budgeted cost per person

Sales Volume variance=(1750-1530)*18.26

Sales volume variance= $4,017.23 Favourable

Variable cost volume variances = (Budgeted rate per person-Flexible Budget rate per person)*Flexible budget number of persons

Variable cost volume variances = (14.77-14.96)*1750

Variable cost volume variances = (14.77-14.96)*1750

Variable cost volume variances = -$332.61 Unfavourable