The Solomon Management Association held its annual public relations luncheon in April Year 2. Based on the previous year's results, the organization allocated $28,472 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 $13.20. The cost driver for meals was attendance, which was expected to be 1,540 individuals.
2. Postage was based on $0.72 per invitation and 3,700 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3. The facility charge is $2,400 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $2,900.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.

SOLOMON MANAGEMENT ASSOCIATION

Public Relations Luncheon Budget

April Year 2

Operating funds allocated $ 28,472

Expenses

Variable costs

Meals (1,540 $13.20) 20,328

Postage (3,700 0.72) 2,664

Fixed costs

Facility 2,400

Printing 1,090

Decorations 980

Speaker's gift 270

Publicity 740

Total expenses 28,472

Budget surplus (deficit) $ 0

Actual results for the luncheon follow.

SOLOMON MANAGEMENT ASSOCIATION

Actual Results for Public Relations Luncheon

April Year 2

Operating funds allocated $28,472

Expenses

Variable costs

Meals (1,760 $13.90) 24,464

Postage (4,700 0.72) 3,384

Fixed costs

Facility 2,900

Printing 1,090

Decorations 980

Speaker's gift 270

Publicity 740

Total expenses 33,828

Budget deficit $(5,356)

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, 4,700 invitations were mailed.
2. Attendance was 1,760 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,900
3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.9 per person.
4. Printing, decorations, the speaker's gift, and publicity costs were as budgeted.

Required:

a. Draft 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 actualresults.

• Required A
• Required B

Draft 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).)

Master Budget- Flexible Budget= Volume Variance

Allocated funds$ 28,472

Expenses:

Variable expenses

Meals 20,328

Postage 2,664

Fixed expenses

Facility 2,400

Printing 1,090

Decorations 980

Speaker's gift 270

Publicity 740

Total expenses 28,472

Surplus(deficit) $ 0

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