Question

The Rooney Management Association held its annual public relations luncheon in April 2017. Based on the previous year’s results, the organization allocated $27,938 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 $13.10. 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.

ROONEY MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April 2017
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.

ROONEY MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April 2017
Operating funds allocated	$	27,938
Expenses
Variable costs
Meals (1,750 × $13.80)		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.

b. Compute flexible budget variances by comparing the flexible budget with the actual results.

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).)

Requirement A

	Master Budget	-	Flexible Budget	=	Volume Variance
Allocated funds	$27,938					None
Expenses:
Variable expenses
Meals	20,043					U
Postage	2,555					U
Fixed expenses
Facility	2,300					U
Printing	1,080					None
Decorations	970					None
Speaker’s gift	260					None
Publicity	730					None
Total expenses	27,938					U
Surplus(deficit)	$0					U

Requirement B

Flexible Budget	-	Actual Results	=	Flexible Variances
Allocated funds			$27,938			None
Expenses:
Variable costs:
Meals			24,150			U
Postage			3,255			None
Fixed costs:
Facility			2,800			None
Printing			1,080			None
Decorations			970			None
Speaker’s gift			260			None
Publicity			730			None
Total expenses			33,245			U

Answer 1

	Master Budget	Flexible Budget	Volume Variance
Allocated funds	$27,938	$27,938	$0	None
Expenses:
Variable expenses
Meals	20,043	22925	$2,882	U
		(1750*13.1)
Postage	2,555	3255	$700	U
		(4650*.7)
Fixed expenses
Facility	2,300	2800	$500	U
		(as more than 1700 people)
Printing	1,080	1080	$0	None
Decorations	970	970	$0	None
Speaker’s gift	260	260	$0	None
Publicity	730	730	$0	None
Total expenses	27,938	32020	$4,082	U
Surplus(deficit)	$0	($4,082)	$4,082	U
Requirement B
	Flexible Budget	Actual Results	Flexible Variances
Allocated funds	$27,938	$27,938	$0	None
Expenses:
Variable costs:
Meals	22925	24,150	1,225	U
Postage	3255	3,255	0	None
Fixed costs:
Facility	2800	2,800	0	None
Printing	1080	1,080	0	None
Decorations	970	970	0	None
Speaker’s gift	260	260	0	None
Publicity	730	730	0	None
Total expenses	32020	33,245	1,225	U
If any doubt please comment