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Wk 4 - Apply: Signature Assignment: Flexible Budget

For this assignment, refer to the scenario located in Problems Series A, section 8-19A of Ch. 8, Performance Evaluation, of Fundamentals of Managerial Accounting Concepts. This scenario puts you in charge of preparing a budget for the Redmond Management Association annual public relations luncheon.

Read the scenario in the textbook and complete the activity below.

Use Excelshowing all work and formulasto complete the following:

• Prepare a flexible budget.
• Compute the sales volume variance and the 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.

Create a 6- to 8-slide presentation for the budget committee meeting. Complete the following in your presentation:

• Summarize the results of the sales volume and variable cost volume variances computations based on the comparison between the master budget and the flexible budget.
• Summarize the results of the flexible budget variances computations based on the comparison between the flexible budget and the actual results.
• Justify the favorable or unfavorable budget variances.
• Since this is a not-for-profit organization, address why anyone should be concerned with meeting the budget.
• Make recommendations for what can be done differently to stay on budget for future luncheons. Provide specific examples to support your recommendations.

Problem 8-19A Analyzing not-for-profit entity variances

The Redmond Management Association held its annual public relations luncheon in April Year 2. Based on the previous years 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 Year 2 luncheon.

The budget for the luncheon was based on the following expectations:

1. 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.

2. 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.

3. The facility charge is $1,000 for a room that will accommodate up to 1,600 people; the charge forPage 379 one to hold more than 1,600 people is $1,500.

4. A fixed amount was designated for printing, decorations, the speakers gift, and publicity.

REDMOND MANAGEMENT ASSOCIATION

Public Relations Luncheon Budget

April Year 2

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

Speakers 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 Year 2

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

Speakers gift 130

Publicity 600

Total expenses 31,090

Budget deficit $ (5,800)

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

1. 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.

2. 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.

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

4. Printing, decorations, the speakers 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.Page 380

c. Mr. Snow was extremely upset with the budget deficit. He immediately called Ms. Hubbard to complain about the budget variance for the meal cost. He told Ms. Hubbard that the added dessert caused the meal cost to be $4,810 ($25,110 $20,300) over budget. He added, I could expect a couple of hundred dollars one way or the other, but several thousand is totally unacceptable. At the next meeting of the budget committee, I want you to explain what happened. Assume that you are Ms. Hubbard. What would you tell the members of the budget committee?

d. Since this is a not-for-profit organization, why should anyone be concerned with meeting the budget?

LO 8-1, 8-3

CHECK FIGURES

a. NI = $702,000

b. NI at 29,000 units: $666,000