Prepare A Flexible Budget And Compute Sales And Variables
Prepare a flexible budget and compute the sales and variable cost volu
The Rundle Management Association held its annual public relations luncheon in April Year 2. The organization allocated $27,408 of its operating budget for the luncheon, with expectations for costs based on specific attendance and mailing figures. The budget anticipated 1,520 attendees at $13.00 per meal, postage costs for mailing 3,600 invitations at $0.68 each, and fixed costs for the facility, printing, decorations, the speaker’s gift, and publicity. Actual results deviated due to increased invitations mailed (4,600), higher attendance (1,740), room upgrade, and increased meal cost per person. These variations led to a budget deficit. Your task is to prepare a flexible budget, analyze variances between the master and flexible budgets, and compare the flexible budget with actual results.
Paper For Above instruction
Introduction
Financial planning and control are critical components of organizational management, particularly during events requiring precise budgeting like the Rundle Management Association’s annual public relations luncheon. This paper aims to analyze the budgeting process by preparing a flexible budget, calculating sales and variable cost volume variances, and evaluating variances between flexible and actual results. The purpose is to understand the financial performance and identify areas of under- or over-spending to enhance future budgeting accuracy and operational efficiency.
Part A: Flexible Budget Preparation and Variance Analysis
The first step involves adjusting the master budget to reflect actual activity levels, creating a flexible budget. The master budget, based on 1,520 attendees, anticipated expenses of $27,408, with specific allocations for meals, postage, and fixed costs. The flexible budget recalculates expected expenses based on the actual attendance and invitations sent, providing a fair comparison point between planned and actual costs at the actual activity level.
The actual attendance was 1,740 individuals, surpassing the original forecast, which necessitated a flexible budget adjustment. Since the meal cost increased from $13.00 to $13.70 per person due to added dessert, and the room charge increased from $2,200 to $2,700 because of the larger crowd, these costs are incorporated into the flexible budget.
- Sales volume variance: Reflects the difference in total sales (or revenues) due to actual volume versus expected volume. Since revenue is not explicitly given, but total expenses are, the analysis focuses on variable costs such as meals and postage. The volume variance for meals is calculated by multiplying the difference in attendance (220 more attendees than planned) by the standard meal cost, and similarly for postage, based on additional invitations mailed.
- Variable cost volume variance calculations:
- Meals:
- Budgeted for 1,520 attendees at $13.00 = $19,760
- Actual for 1,740 attendees at $13.70 = $23,838
- Variance: (1,740 - 1,520) × $13.00 = 220 × $13.00 = $2,860 (Unfavorable)
- Postage:
- Budgeted for 3,600 invitations at $0.68 = $2,448
- Actual for 4,600 invitations = 4,600 × $0.68 = $3,128
- Variance: (4,600 - 3,600) × $0.68 = 1,000 × $0.68 = $680 (Unfavorable)
These variances highlight increased costs attributable solely to higher activity levels, illustrating how volume influences expenses in variable cost categories.
Summary of Volume Variances:
| Expense Item | Variance Amount | Effect |
|----------------|-----------------|---------|
| Meals | $2,860 | U |
| Postage | $680 | U |
(Note: The fixed expense—the facility charge—increased from $2,200 to $2,700, which is a volume-driven variable cost adjustment, but typically fixed costs are excluded from volume variance analysis unless relating to scale changes.)
Part B: Variance Analysis Between Flexible Budget and Actual Results
The second step compares the flexible budget to actual results, focusing on variances attributable to cost control or other factors.
- Actual expenses:
- Meals: $23,838 (actual) versus $23,680 (flexible budget at 1,740 attendees at $13.70)
- Postage: $3,128 (actual) versus $2,960 (flexible budget for 4,600 invitations at $0.68)
- Facility: $2,700 (actual) versus $2,700 (flexible budget)
- Printing, Decorations, and Publicity: as budgeted at $1,070, $960, and $720.
- Speaker’s gift remains unchanged at $250.
- Variance calculations:
- Meals:
- Actual: $23,838
- Flexible budget: 1,740 × $13.70 = $23,838
- Variance: $0 (No variance; costs match expectations at actual activity levels)
- Postage:
- Actual: $3,128
- Flexible budget: 4,600 × $0.68 = $3,128
- Variance: $0 (No variance)
- Facility:
- Actual: $2,700
- Flexible budget: $2,700
- Variance: $0
- Fixed costs (Printing, Decorations, Speaker’s gift, Publicity) match budgeted amounts, thus no variances.
- Overall variances:
The total actual expenses ($32,666) exceed the flexible budget ($27,408) by $5,258, indicating a unfavorable total variance primarily driven by higher meal and postage costs.
Summary of Variances with Effect:
| Expense Item | Variance | Effect |
|----------------|-----------|---------|
| Meals | Actual match flexible budget | None |
| Postage | Actual match flexible budget | None |
| Facility | $0 | None |
| Printing | $0 | None |
| Decorations | $0 | None |
| Speaker's gift | $0 | None |
| Publicity | $0 | None |
The overall unfavorable variance suggests cost overruns mainly in variable expenses, perhaps due to last-minute changes (e.g., larger room, additional attendees, dessert added) without proportional budget adjustments.
Conclusion
The analysis demonstrates the importance of flexible budgeting for effective financial control. The volume variances elucidate how activity level changes impact variable costs directly, while the comparison between flexible budget and actual results highlights areas where costs exceeded expectations. For the Rundle Management Association, future budgeting should incorporate greater flexibility and contingency plans to accommodate unforeseen increases in attendance or expenses, such as upgraded facilities or additional menu items. This approach enhances cost management, supports organizational accountability, and ensures the luncheon remains financially sustainable.
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