The Rooney Management Association held its annual public relations luncheon in A

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

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

Explanation / Answer

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

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