The Vernon Management Association held its annual public relations luncheon in April Year 2. Based on the previous years results, the organization allocated $30,098 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 $13.50. The cost driver for meals was attendance, which was expected to be 1,570 individuals.
2. Postage was based on $0.78 per invitation and 3,850 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
3. The facility charge is $2,700 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $3,200.
4. A fixed amount was designated for printing, decorations, the speakers gift, and publicity.

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, 4,850 invitations were mailed.
2. Attendance was 1,790 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$3,200
3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $14.2 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.

VERNON MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April Year 2 Operating funds allocated $30,098 Expenses Variable costs Meals (1,570 x $13.50) 21,195 Postage (3,850 x 0.78) 3,003 Fixed costs Facility 2,700 Printing 1,120 Decorations 1,010 Speaker's gift 300 Publicity 770 Total expenses 30,098 Budget surplus (deficit) $ Actual results for the luncheon follow. VERNON MANAGEMENT ASSOCIATION Actual Results for Public Relations Luncheon April Year 2 Operating funds allocated $30,098 Expenses Variable costs Meals (1,790 X $14.20) 25,418 Postage (4,850 x 0.78) 3,783 Fixed costs Facility 3,200 Printing 1,120 Decorations 1,010 Speaker's gift 300 Publicity 770 Total expenses 35,601 Budget deficit $(5,503) 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 $ 30,098 21,195 3,003 Allocated funds Expenses: Variable expenses Meals Postage Fixed expenses Facility Printing Decorations Speaker's gift Publicity Total expenses Surplus(deficit) 2,700 1,120 1,010 300 770 30.098 0 $ Required A Required B > 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 30,098 25,418 3,783 Allocated funds Expenses: Variable costs: Meals Postage Fixed costs: Facility Printing Decorations Speaker's gift Publicity Total expenses Surplus(deficit) 3,200 1,120 1,010 300 770 35,601 (5,503) $