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: 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. 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. 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. 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 Luncheon 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. 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. 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 At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.1 per person. Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.k 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.

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: 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. 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. 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. 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 Luncheon 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. 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. 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 At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.1 per person. Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.k 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 1CMA: When compared to static budgets, flexible budgets: a. offer managers a more realistic comparison of...

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The budget for the luncheon was based on the following expectations:

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.
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.
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.
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 Luncheon
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.

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.
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
At the last minute, Ms. Hubbard decided to add a dessert to the menu, which increased the meal cost to $13.1 per person.
Printing, decorations, the speaker’s gift, and publicity costs were as budgeted.k

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.

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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