Analyzing not-for-profit entity variances The Midwest Management Association held its annual public relations luncheon in April 2012. Based on the previous year's results, the organization allocated $21,360 of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Michelle Laird, the treasurer, prepared the following budget for the 2012 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 $0.44 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.

Actual results for the luncheon follow.

Reasons for the differences between the budgeted and actual data follow.
1. The president of the organization, Yvonne Davis, 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. Laird 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 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.
c. Ms. Davis was extremely upset with the budget deficit. She immediately called Ms. Laird to complain about the budget variance for the meal cost. She told Ms. Laird that the added dessert caused the meal cost to be $3,730 ($20,250 2 $16,520) over budget. She added, "I could expect a couple hundred dollars 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. Laird. What would you tell the members of the budget committee?
d. Since this is a not-for-profit organization, why should anyone be concerned with meeting the budget?

 
 

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MIDWEST MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April 2012 Operating funds allocated Expenses Variable costs $21,360 Meals (1,400 x $1.80) Postage (3,000 x 0.44) Fixed costs 16,520 1,320 Facility Printing Decorations 1,000 950 840 Speaker's gift Publicity Total expenses 130 600 21,360 Budget surplus (deficit) $ MIDWEST MANAGEMENT ASSOCIATION Public Relations Luncheon Budget April 2012 Operating funds allocated Expenses Variable costs $21,360 Meals (1,400 x $1.80) Postage (3,000 x 0.44) Fixed costs 16,520 1,320 Facility Printing Decorations 1,000 950 840 Speaker's gift Publicity Total expenses 130 600 21,360 Budget surplus (deficit) $