The Marketing Department of Barlett State University planned to hold its annual distinguished visiting lecturer (DVL) presentation in October 2017. The secretary of the department prepared the following budget based on costs that had been incurred in the past for the DVL presentation:
MARKETING DEPARTMENT
Distinguished Visiting Lecturer Budget
October 2017
Variable costs
Refreshments.............................................. $ 375
Postage....................................................... 368
Step costs*
Printing...................................................... 500
Facility........................................................250
Fixed costs
Dinner........................................................200
Speaker's gift............................................... 100
Publicity....................................................... 50
Total costs................................................. $1,843
*Step costs are costs that change abruptly after a defined range of volume (attendance). They do not change proportionately with unit volume increases (i.e., the cost is fixed within a range of activity but changes to a different fixed cost when the volume changes to a new range). For instance, the facility charge is $250 for from 1 to 400 attendees. From 401 to 500 attendees, the next larger room is needed, and the charge is $350. If more than 500 attended, the room size and cost would increase again.
The budget for the presentation was based on the following expectations:
1. Attendance was estimated at 50 faculty from Barlett State and neighboring schools, 125 invited guests from the business community, and 200 students. Refreshments charge per attendee would be $1.00. The cost driver for refreshments is the number of attendees.
2. Postage was based on $0.46 per invitation; 800 invitations were expected to be mailed to faculty and finance business executives. The cost driver for postage is the number of invitations mailed.
3. Printing cost was expected to be $500 for 800 invitations and envelopes. Additional invitations and envelopes could be purchased in batches of 100 units with each batch costing $50.
4. The DVL presentation was scheduled at a downtown convention center. The facility charge was $250 for a room that has a capacity of 400 persons; the charge for one to hold more than 400 people was $350.
5. After the presentation, three Barlett State faculty members planned to take the speaker to dinner. The dinner had been prearranged at a local restaurant for $200 for a three-course dinner.
6. A gift for the speaker was budgeted at $100.
7. Publicity would consist of flyers and posters placed at strategic locations around campus and business offices, articles in the business section of the local newspapers, and announcements made in business classes and school newspapers. Printing for the posters and flyers had been prearranged for $50.
8. The speaker lives in the adjoining state and had agreed to drive to the presentation at his own expense.
The actual results of the presentation follow:
1. Attendance consisted of 450 faculty, business executives, and students.
2. An additional 100 invitations were printed and mailed when the Marketing Department decided that selected alumni should also be invited.
3. Based on RSVP responses, the department rented the next size larger room at a cost of $350 for the presentation.
4. The speaker's gift cost was as budgeted.
5. The department chairperson decided to have a four-course dinner, which cost $230.
6. Because of poor planning, the posters and flyers were not distributed as widely as expected. It was decided at the last minute to hire a temporary assistant to make phone calls to alumni. The actual publicity cost was $75.
Required
a. Prepare a flexible budget and compute sales and variable cost variances based on a comparison between the master budget and the flexible budget. Briefly explain the meaning of the activity variances.
b. Compute flexible budget variances by comparing the flexible budget with the actual results. Briefly explain the meaning of the variable cost flexible budget variances. Discuss the fixed cost variances.
c. Calculate the expected and actual fixed cost per attendee. Discuss the significance of the difference in these amounts.
d. Since the department is a not-for-profit entity, why is it important for it to control the cost of sponsoring the distinguished visiting lecturer presentation?