The Southwest Management Assiciation held its annual public relations luncheon in April 2010. Based on the previous year's results, the organization allocated $21,270 of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Abigail Odem, the treasurer, prepared the following budget for the 2010 luncheon.
The budget for the luncheon was based on the following expectations.
1. The meal cost per person was expected to be $11.80. The cost driver for meals was attendance, which was expected to be 1,400 individuals.
2. Postage was based on$0.41 per invitation and 3,000 invitations were expected to be mailed. THe cost driver for postage was number of invitations mailed.
3. THe facility charge is $1,000 for a room that will accommodate up to 1,600 people: the charge for one to hold more than 1,600 people is $1,500.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.
Southwest Management Association
Public Relations Luncheon Budget
April 2010
Operating funds allocated $21,270
Expenses
Variable costs
Meals (1,400x$11.80) $16,520
Postage (3,000x 0.41) $1,230
Fixed costs
Faculty $1,000
Printing $950
Decorations $840
Speaker's gift $130
Publicity $600
Total Expenses $21,270
Budget surplus (deficit) $0
Actual results for the luncheon follow.
Southwest Management Association
Actual Results for Public Relations Luncheon
April 2010
Operating funds allocated $21,270
Expenses
Variable costs
Meals (1,620x$12.50) $20,250
Postage (4,000x $0.41) $1,640
Fixed costs
Faculty $1,500
Printing $950
Decorations $840
Speaker's gift $130
Publicity $600
Total expenses $25,910
Budget deficit $(4,640)
Reasons for the differences between the budgeted and actual data follow.
1. The president of the organization, June Weil, increased the invitation list to include 1,000 former members. As a result, 4,000 invitations were mailed.
2. Attendance was 1,620 individuals. Because of higher-than-expected attendance, the luncheon was moved to a larger room, thereby increasing the facility charge to $1,500.
3. At the last minute, Ms. Odem decided to add a dessert to the menu, which increased the meal cost to $12.50 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 variences 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.
c. Ms. Weil was extremely upset with the budget deficit. She immediately called Ms. Odem to complain about the budget variance for the meal cost. She told Ms. Odem that the added dessert caused the meal cost to be $3,730 ($20,250- $16,520) over budget. SHe added, "I could expect a couple hundred dollard one way or the other, but several thousand is totally unacceptable. At the next meeting of the budget committee, I want you to explain what happened." Assume that you are Ms. Odem. What would you tell the members of the budget committee?
d. Since this is a not-for-profit organization, why should anyone be concerend with meeting the budget?