The Westwood Management Association held its annual public relations luncheon in

Question

The Westwood Management Association held its annual public relations luncheon in April 2013. Based on the previous year’s results, the organization allocated $27,938of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Andrea Cole, the treasurer, prepared the following budget for the 2013 luncheon.

The meal cost per person was expected to be $13.10. The cost driver for meals was attendance, which was expected to be 1,530 individuals.

Postage was based on $0.70 per invitation and 3,650 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.

The facility charge is $2,300 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $2,800.

A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.

730

24,150

The president of the organization, Zachary Taylor, increased the invitation list to include 1,000 former members. As a result, 4,650 invitations were mailed.

Attendance was 1,750 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,800

At the last minute, Ms. Cole decided to add a dessert to the menu, which increased the meal cost to $13.8 per person.

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). Negative amount should be indicated by a minus sign.)

The Westwood Management Association held its annual public relations luncheon in April 2013. Based on the previous year’s results, the organization allocated $27,938of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Andrea Cole, the treasurer, prepared the following budget for the 2013 luncheon.

Explanation / Answer

Master Budget Actual Flexible Budget Expenses      Variable costs      Meals (1,530 × $13.10 $             20,043 $      24,150 (1750*13.8) $                22,925 (1750*13.1)      Postage (3,650× 0.70) $                2,555 $        3,255 (4650*0.7) $                  3,255 (4650*0.7)      Fixed costs      Facility $                2,300 $        2,800 $                  2,800      Printing $                1,080 $        1,080 $                  1,080      Decorations $                   970 $            970 $                      970      Speaker’s gift $                   260 $            260 $                      260      Publicity $                   730 $            730 $                      730 Total Expenses $             27,938 $      33,245 $                32,020 Budgeted cost per person 27,938/1530) 33245/1750 32020/1750 Budgeted cost per person $                18.26 $        19.00 $                  18.30 Total Vaiable Cost $             22,598 $      27,405 $                26,180 Variable cost per person $                14.77 $        15.66 $                  14.96 Sales Volume variance= (Actual number of persons-budgeted number of persons)*budgeted cost per person Sales Volume variance=(1750-1530)*18.26 Sales volume variance= $4,017.23 Favourable Variable cost volume variances = (Budgeted rate per person-Flexible Budget rate per person)*Flexible budget number of persons Variable cost volume variances = (14.77-14.96)*1750 Variable cost volume variances = (14.77-14.96)*1750 Variable cost volume variances = -$332.61 Unfavourable

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