The Thornton Management Association held its annual public relations luncheon in April Year 2. Based on the previous year's results, the organization allocated $29,552 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 $13.40. The cost driver for meals was attendance, which was expected to be 1,560 individuals. 2. Postage was based on $0.76 per invitation and 3,800 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed. 3. The facility charge is $2,600 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $3,100. 4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity. THORNTON MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April Year 2 Operating funds allocated $29,552 Expenses Variable costs Meals (1,560 x $13.40) 20,904 Postage (3,800 X 0.76) 2,888 Fixed costs Facility 2,600 Printing 1,110 Decorations 1,000 Speaker's gift 290 Publicity 760 Total expenses 29,552 Budget surplus (deficit) Actual results for the luncheon follow. THORNTON MANAGEMENT ASSOCIATION Actual Results for Public Relations Luncheon April Year 2 Operating funds allocated $29,552 Expenses Variable costs Meals (1,780 x $14.10) 25,098 Postage (4,800 X 0.76) 3,648 Fixed costs Facility 3,100 Printing 1,110 Decorations 1,000 Speaker's gift 290 Publicity 760 Total expenses 35,006 Budget deficit $(5,454) 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, 4,800 invitations were mailed. 2. Attendance was 1,780 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$3,100 3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $14.1 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. Required A Required B 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).) - Flexible Budget = Volume Variance Master Budget $ 29,552 20,904 2,888 Allocated funds Expenses: Variable expenses Meals Postage Fixed expenses Facility Printing Decorations Speaker's gift Publicity Total expenses Surplus(deficit) 2,600 1,110 1,000 290 760 29,552 Required A Required B Compute flexible budget variances by comparing the flexible budget with the actual results. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect i.e., zero variance).) Flexible Budget - = Flexible Variances Actual Results 29,552 25,098 3,648 Allocated funds Expenses: Variable costs: Meals Postage Fixed costs: Facility Printing Decorations Speaker's gift Publicity Total expenses Surplus(deficit) 3,100 1,110 1,000 290 760 35,006 (5,454) $
