Question

The Redmond Management Association held its annual public relations luncheon in April 2017. Based on the previous year’s results, the organization allocated $25,290 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:

The meal cost per person was expected to be $14.50. The cost driver for meals was attendance, which was expected to be 1,400 individuals.

Postage was based on $0.49 per invitation and 3,000 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.

The facility charge is $1,000 for a room that will accommodate up to 1,600 people; the charge for one to hold more than 1,600 people is $1,500.

A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.

REDMOND MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April 2017
Operating funds allocated	$	25,290
Expenses
Variable costs
Meals (1,400 × $14.50)		20,300
Postage (3,000 × $0.49)		1,470
Fixed costs
Facility		1,000
Printing		950
Decorations		840
Speaker’s gift		130
Publicity		600
Total expenses		25,290
Budget surplus (deficit)	$	0

Actual results for the luncheon follow.

REDMOND MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April 2017
Operating funds allocated	$	25,290
Expenses
Variable costs
Meals (1,620 × $15.50)		25,110
Postage (4,000 × $0.49)		1,960
Fixed costs
Facility		1,500
Printing		950
Decorations		840
Speaker’s gift		130
Publicity		600
Total expenses		31,090
Budget deficit	$	(5,800	)

Reasons for the differences between the budgeted and actual data follow.

The president of the organization, Rodney Snow, increased the invitation list to include 1,000 former members. As a result, 4,000 invitations were mailed.

Attendance was 1,620 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to $1,500.

At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $15.50 per person.

Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.

Required

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.

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

Answer 1

	Flexible Budget:
	Operating funds allocated				25290
	Expenses
	Variable costs
	Meals	(1620*14.50)			23490
	Postage	(4000*0.49)			1960
	Fixed costs
	Facility				1500
	Printing				950
	Decorations				840
	Speaker’s gift				130
	Publicity				600
	Total expenses				29470
	Budget surplus (deficit)				-4180
	Sales volume variance=25290-25290=0
	Variable cost as per Master beudget=20300+1470=21770
	Variable cost as per Flexible beudget=23490+1960=25450
	Variable cost volume variance=25450-21770=3680 U
					Flexible Budget	Actual	Variance
	Operating funds allocated				25290	25290	0
	Expenses
	Variable costs
	Meals	(1620*14.50)			23490	25110	1620	U
	Postage	(4000*0.49)			1960	1960	0
	Fixed costs
	Facility				1500	1500	0
	Printing				950	950	0
	Decorations				840	840	0
	Speaker’s gift				130	130	0
	Publicity				600	600	0
	Total expenses				29470	31090	1620	U
	Budget surplus (deficit)				-4180	-5800	1620	U