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

a.

	Flexible Budget
		Operating funds allocated	31202
Expenses
Variable costs
Meals (1,810 x 13.70)	24797
Postage 94,950 x 0.82)	4059
Fixed Costs
Facility	2900
Printing	1140
Decoration	1030
Speaker's Gift	320
Publicity	790
Total Expenses	35036
Budget Surplus / (Deficit)	-3834

b.

Flexible Budget Report
	Actual	Flexible Budget Variance		Flexible Budget
					Operating funds allocated	31202	0		31202
Expenses
Variable costs
Meals	26064	1267	U	24797
Postage	4059			4059
Fixed Costs
Facility	3400	500	U	2900
Printing	1140	0		1140
Decoration	1030	0		1030
Speaker's Gift	320	0		320
Publicity	790	0		790
Total Expenses	36803	1767	U	35036
Budget Surplus / (Deficit)	-5601	-1767	U	-3834