Question

The Campbell Management Association held its annual public relations luncheon in April 2017. Based on the previous year’s results, the organization allocated $23,312 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 $12.20. The cost driver for meals was attendance, which was expected to be 1,440 individuals.

Postage was based on $0.52 per invitation and 3,200 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.

The facility charge is $1,400 for a room that will accommodate up to 1,600 people; the charge for one to hold more than 1,600 people is $1,900.

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

CAMPBELL MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April 2017
Operating funds allocated	$	23,312
Expenses
Variable costs
Meals (1,440 × $12.20)		17,568
Postage (3,200 × 0.52)		1,664
Fixed costs
Facility		1,400
Printing		990
Decorations		880
Speaker's gift		170
Publicity		640
Total expenses		23,312
Budget surplus (deficit)	$	0

Actual results for the luncheon follow.

CAMPBELL MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April 2017
Operating funds allocated	$	23,312
Expenses
Variable costs
Meals (1,660 × $12.90)		21,414
Postage (4,200 × 0.52)		2,184
Fixed costs
Facility		1,900
Printing		990
Decorations		880
Speaker's gift		170
Publicity		640
Total expenses		28,178
Budget deficit	$	(4,866	)

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

The president of the organization, Zachary Taylor, increased the invitation list to include 1,000 former members. As a result, 4,200 invitations were mailed.

Attendance was 1,660 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$1,900

At the last minute, Ms. Cole decided to add a dessert to the menu, which increased the meal cost to $12.9 per person.

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	Volume Variances	Master Budget
Operating Funds Allocated	$ 23,312		$ 23,312
Expenses
Variable Costs
Meals	20,252	2,684 U	17,568
Postage	2,184	520 U	1,664
Fixed Costs
Facility	1,900	500 U	1,400
Printing	990	N	990
Decorations	880	N	880
Speakers' Gift	170	N	170
Publicity	640	N	640
Total Expenses	27,016	3,704 U	23,312
Budge Surplus ( Deficit)	(3,704)	3,704 U	0

b.

	Flexible Budget	Flexible Budget Variances	Actual Results
Operating Funds Allocated	$ 23,312		$ 23,312
Expenses
Variable Costs
Meals	20,252	1,162 U	21,414
Postage	2,184	N	2,184
Fixed Costs
Facility	1,900	N	1,900
Printing	990	N	990
Decoration	880	N	880
Speaker's Gift	170	N	170
Publicity	640	N	640
Total Expenses	27,016	1,162 U	28,178
Budget Surplus ( Deficit)	(3,704)	1,162 U	(4,866)