Computing Sales and Variable Cost Volume Variances
The Rundle Management Association held its annual public relations luncheon in April Year 2. Based on the previous year’s results, the organization allocated $27,408 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:
- The meal cost per person was expected to be $13.00. The cost driver for meals was attendance, which was expected to be 1,520 individuals.
- Postage was based on $0.68 per invitation and 3,600 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed.
- The facility charge is $2,200 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $2,700.
- A fixed amount was designated for printing, decorations, the speaker’s gift, and publicity.
Rundle Management Association
Public Relations Luncheon Budget
April Year 2Operating funds allocated $ 27,408 Expenses Variable costs Meals (1,520 × $13.00) 19,760 Postage (3,600 × 0.68) 2,448 Fixed costs Facility 2,200 Printing 1,070 Decorations 960 Speaker’s gift 250 Publicity 720___ Total expenses 27,408 Budget surplus (deficit) $ 0_____
Actual results for the luncheon follow.
Rundle Management Association
Actual Results for Public Relations Luncheon
April Year 2
Operating funds allocated $ 27,408 Expenses Variable costs Meals (1,740 × $13.70) 23,838 Postage (4,600 × 0.68) 3,128 Fixed costs Facility 2,700 Printing 1,070 Decorations 960 Speaker’s gift 250 Publicity 720 Total expenses 32,666 Budget deficit $ (5,258 )
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, 4,600 invitations were mailed.
2. Attendance was 1,740 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to$2,700
3. At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.7 per person.
4. Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.
Required:
- 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.
- Compute flexible budget variances by comparing the flexible budget with the actual results.
- 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).
