The Sullivan Management Association held its annual public relations luncheon in
ID: 2517310 • Letter: T
Question
The Sullivan Management Association held its annual public relations luncheon in April 2015. Based on the previous year’s 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, Richard Bell, the treasurer, prepared the following budget for the 2015 luncheon.
The budget for the luncheon was based on the following expectations.
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.
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.
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.
A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.
Actual results for the luncheon follow.
Reasons for the differences between the budgeted and actual data follow.
- The president of the organization, Taylor Green, increased the invitation list to include 1,000 former members. As a result, 4,850 invitations were mailed.
- 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
- At the last minute, Mr. Anderson decided to add a dessert to the menu, which increased the meal cost to $14.2 per person.
- Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.
Required:
1. 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.
2. Compute flexible budget variances by comparing the flexible budget with the actual results.
SULLIVAN MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April 2015 Operating funds allocated $ 30,098 Expenses Variable costs Meals (1,570 × $13.50) 21,195 Postage (3,850 × 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) $ 0Explanation / Answer
SULLIVAN MANAGEMENT ASSOCIATION Flexible Budget Flexible Budget Volume Variance Operating funds allocated 30,098 30,098 0 None Expenses Variable costs Meals 24165 21,195 2,970 U (1790*13.5) Postage 3783 3,003 780 U (4850*.78) Fixed costs Facility 3,200 2,700 500 U Printing 1,120 1,120 0 None Decorations 1,010 1,010 0 None Speaker's gift 300 300 0 None Publicity 770 770 0 None Total expenses 34,348 30,098 4,250 U Budget (deficit) -4,250 0 -4,250 U ans 2 Flexible Budget variane Flexible Actual Spending Variance Operating funds allocated 30,098 30,098 0 None Expenses Variable costs Meals 24165 25,418 1,253 U (1790*13.5) Postage 3783 3,783 0 U (4850*.78) Fixed costs Facility 3,200 3,200 0 U Printing 1,120 1,120 0 None Decorations 1,010 1,010 0 None Speaker's gift 300 300 0 None Publicity 770 770 0 None Total expenses 34,348 35,601 1,253 U Budget (deficit) -4,250 -5,503 -1,253 U If any doubt please comment
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