The Redmond Management Association held its annual public relations in April Year 2. 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 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 for one to hold more than 1,600 people is $1,500.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.

REDMOND MANAGMENT ASSOCIATION

Public Relations Luncheon Budget

April Year 2

Operating funds allocated $25,290

Expenses

Variable costs

Meals (1,400 x $14.50) 20,300

Postage (3,000 x $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.

Operating funds allocated $25,290

Expenses

Variable costs

Meals (1,620 x $15.50) 25,110

Postage (4,000 x $0.49) 1,960

Fixed costs

Facility 1,500

Printing 950

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.

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 speaker's gift and publicity costs were as budgeted.

Create one 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.

Justify the favorable or unfavorable budget variances.

Make recommendations for what can be done differently to stay on budget for future luncheons.