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Problem 8-19A Analyzing not-for-profit entity variances
The Redmond Management Association held its annual public relations luncheon in April Year 2. Based on the previous
year's results, the organization allocated $25,290 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:
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 $0.49 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
Page 379
hold more than 1,600 people is $1,500.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.
REDMOND MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April Year 2
$25,290
Operating funds allocated
Expenses
Variable costs
Meals (1,400 $14.50)
20,300
1,470
Postage (3,000 $0.49)
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NOTA more than 1,000 people is 21, JUU.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.
REDMOND MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April Year 2
$25,290
Operating funds allocated
Expenses
Variable costs
Meals (1,400 $14.50)
Postage (3,000 $0.49)
Fixed costs
20,300
1,470
1,000
Facility
Printing
950
Decorations
840
130
Speaker's gift
Publicity
600
Total expenses
25,290
Budget surplus (deficit)
$
0
Actual results for the luncheon follow.
REDMOND MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
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REDMOND MANAGEMENT ASSOCIATION
Actual Results for Public Relations Luncheon
April Year 2
$25,290
Operating funds allocated
Expenses
Variable costs
Meals (1,620 * $15.50)
Postage (4,000 - $0.49)
25,110
1,960
Fixed costs
Facility
1,500
950
840
130
Printing
Decorations
Speaker's gift
Publicity
Total expenses
Budget deficit
600
31,090
$ (5,800)
Reasons for the differences between the budgeted and actual data follow.
1. The president of the organization, Rodney Snow, 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. Hubbard decided to add a dessert to the menu, which increased the meal cost to $15.50 per
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130
600
Speaker's gift
Publicity
Total expenses
Budget deficit
31,090
$ (5,800)
Reasons for the differences between the budgeted and actual data follow.
1. The president of the organization, Rodney Snow, 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. Hubbard 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.
Page 380
c. Mr. Snow was extremely upset with the budget deficit. He immediately called Ms. Hubbard to complain
about the budget variance for the meal cost. He told Ms. Hubbard 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. Hubbard. 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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Problem 8-19A Analyzing not-for-profit entity variances
The Redmond Management Association held its annual public relations luncheon in April Year 2. Based on the previous
year's results, the organization allocated $25,290 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:
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 $0.49 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
Page 379
hold more than 1,600 people is $1,500.
4. A fixed amount was designated for printing, decorations, the speaker's gift, and publicity.
REDMOND MANAGEMENT ASSOCIATION
Public Relations Luncheon Budget
April Year 2
$25,290
Operating funds allocated
Expenses
Variable costs
Meals (1,400 $14.50)
20,300
1,470
Postage (3,000 $0.49)
iodent
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