Question

The Munoz Management Association held its annual public relations luncheon in April Year 2. Based on the previous year's results, the organization allocated $26,360 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 $12.80. The cost driver for meals was attendance, which was expected to be 1,500 individuals. 2. Postage was based on $0.64 per invitation and 3,500 invitations were expected to be mailed. The cost driver for postage was number of invitations mailed. 3. The facility charge is $2,000 for a room that will accommodate up to 1,700 people; the charge for one to hold more than 1,700 people is $2,500. 4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity. MUNOZ MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April Year 2 Operating funds allocated $26,360 Expenses Variable costs Meals (1,500 x $12.80) 19,200 Postage (3,500 x 0.64) 2,240 Fixed costs Facility 2,000 Printing 1,050 Decorations 940 Speaker's gift 230 Publicity 700 Total expenses 26,360 Budget surplus (deficit) $ 0

Answer 1

Answer-

1)

	Master Budget	-	Flexible budget	=	Volume variance
Allocated funds	$26,360		$26,360		0
Expenses:
Variable expenses
Meals	19,200		22,016 (1,720*12.80)		(2,816)	Unfavorable
Postage	2,240		2,880 (4,500*0.64)		(640)	Unfavorable
fixed expenses
Facility	2,000		2,500		(500)	Unfavorable
Printing	1,050		1,050		0
Decoration	940		940		0
Speakers gift	230		230		0
Publicity	700		700		0
Total expenses	26,360		30,316		(3,956)	Unfavorable
Surplus / (deficit)	0		(3,956)		3,956	Unfavorable

2)

	Flexible budget	-	Actual result	=	Volume variance
Allocated funds	$26,360		$26,360		0
Expenses:
Variable expenses
Meals	22,016 (1,720*12.80)		23,220		(1,204)	Unfavorable
Postage	2,880 (4,500*0.64)		2,880 (4,500*0.64)		(640)	Unfavorable
fixed expenses
Facility	2,500		2,500		0
Printing	1,050		1,050		0
Decoration	940		940		0
Speakers gift	230		230		0
Publicity	700		700		0
Total expenses	30,316		31,520		(1,204)	Unfavorable
Surplus / (deficit)	(3,956)		(5,160)		1,204	Unfavorable

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