The Westwood Management Association held its annual public relations luncheon in April 2013. 1Based on the previous year’s results, the organization allocated $25,200 of its operating budget to cover the cost of the luncheon. To ensure that costs would be appropriately controlled, Andrea Cole, the treasurer, prepared the following budget for the 2013 luncheon.
The budget for the luncheon was based on the following expectations.
1. The meal cost per person was expected to be $14.50. The cost driver for meals was attendance, which was expected to be 1,400 individuals.
2. Postage was based on $0.46 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.
WESTWOOD MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April 2013
Operating funds allocated .............. $25,200
Expenses
Variable costs
Meals (1,400 3 $14.50) ............... 20,300
Postage (3,000 3 $0.46) ............... 1,380
Fixed costs
Facility ....................... 1,000
Printing ....................... 950
Decorations .................... 840
Speaker’s gift .................... 130
Publicity ...................... 600
Total expenses .................... 25,200
Budget surplus (deficit) ................. $ 0
Actual results for the luncheon follow.
WESTWOOD MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April 2013
Operating funds allocated ............... $25,200
Expenses
Variable costs
Meals (1,620 3 $15.50) ................ 25,110
Postage (4,000 3 $0.46) ................ 1,840
Fixed costs
Facility ....................... 1,500
Printing ....................... 950
Decorations ..................... 840
Speaker’s gift .................... 130
Publicity ...................... 600
Total expenses .................... 30,970
Budget deficit .................... $ (5,770)
Reasons for the differences between the budgeted and actual data follow.
1. The president of the organization, Zachary Taylor, 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. Cole decided to add a dessert to the menu, which increased the meal cost to $15.50 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. Mr. Taylor was extremely upset with the budget deficit. He immediately called Ms. Cole to complain about the budget variance for the meal cost. He told Ms. Cole that the added dessert caused the meal cost to be $4,810 ($25,110 – $20,300) over budget. He 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. Cole. 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?