The Finch Management

The Finch Management Association held its annual public relations luncheon in April Year 2. Based on the previous year’s results, the organization allocated $24,312 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 $12.40. The cost driver for meals was attendance, which was expected to be 1,460 individuals.

2.   Postage was based on $0.56 per invitation and 3,300 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.

3.   The facility charge is $1,600 for a room that will accommodate up to 1,600 people; the charge for one to hold more than 1,600 people is $2,100.

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

FINCH MANAGEMENT ASSOCIATION

Public Relations Luncheon Budget

April Year 2

Operating funds allocated           $24,312

Expenses

Variable costs

Meals (1,460 × $12.40)                18,104

Postage (3,300 × 0.56)                   1,848

Fixed costs

Facility                                               1,600

Printing                                              1,010

Decorations                                         900

Speaker’s gift                                      190

Publicity                                               660

Total expenses                               24,312

Budget surplus (deficit)                 $        0

Actual results for the luncheon follow.

FINCH MANAGEMENT ASSOCIATION

Actual Results for Public Relations uncheon

April Year 2

Operating funds allocated                     $24,312

Expenses

Variable costs

Meals (1,680 × $13.10)                           22,008

Postage (4,300 × 0.56)                              2,408

Fixed costs

Facility                                                          2,100

Printing                                                         1,010

Decorations                                                    900

Speaker’s gift                                                 190

Publicity                                                          660

Total expenses                                         29,276

Budget deficit                                         $(4,964)

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, 4,300 invitations were mailed.

2.   Attendance was 1,680 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,100

3.   At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.1 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.

Complete this question by entering your answers in the tabs below.

Require 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. (Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

Master Budget   –   Flexible Budget   =  Volume Variance

Allocated funds                   $24,312

Expenses:

Variable expenses

Meals                                     18,104

Postage                                   1,848

Fixed expenses

Facility                                     1,600

Printing                                    1,010

Decorations                               900

Speaker’s gift                            190

Publicity                                     660

Total expenses                    24,312

Surplus(deficit)                           $0

Require B

Flexible Budget   –  Actual Results  =  Flexible Variances

Allocated funds                                              $24,312

Expenses:

Variable costs:

Meals                                                               22,008

Postage                                                             2,408

Fixed costs:

Facility                                                               2,100

Printing                                                              1,010

Decorations                                                         900

Speaker’s gift                                                       190

Publicity                                                                660

Total expenses                                               29,276

Surplus(deficit)                                            $(4,964)