The Redmond Management Association Budget
Scenario: 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, you, the treasurer, prepared the following budget for the Year 2 luncheon.
Prepare a flexible budget.
Compute the sales volume variance and the variable cost volume variances based on a comparison between the master budget and the flexible budget.
Compute flexible budget variances by comparing the flexible budget with the actual results.
Mr. Snow was extremely upset with the budget deficit. He immediately called you, the treasurer, to complain about the budget variance for the meal cost. He told you 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 budget meeting of the budget committee, I want you to explain what happened.”
Create a 6- to 8-slide presentation for the budget committee meeting. Complete the following in your presentation:
Summarize the results of the sales volume and variable cost volume variances computations based on the comparison between the master budget and the flexible budget.
Summarize the results of the flexible budget variances computations based on the comparison between the flexible budget and the actual results.
Justify the favorable or unfavorable budget variances.
Since this is a not-for-profit organization, address why anyone should be concerned with meeting the budget.
Make recommendations for what can be done differently to stay on budget for future luncheons. Provide specific examples to support your recommendations.
Sample Solution
Slide 1: Title slide
- Title: Budget Variance Analysis for the Redmond Management Association Annual Public Relations Luncheon
- Date: April 20, 2023
- Prepared by: Bard
Slide 2: Background
- The Redmond Management Association held its annual public relations luncheon in April 2023.
- The organization allocated $25,290 of its operating budget to cover the cost of the luncheon.
- The treasurer prepared a flexible budget to ensure that costs would be appropriately controlled.
Full Answer Section
Slide 3: Sales Volume Variance and Variable Cost Volume Variances
- The sales volume variance is $1,090 favorable. This means that the actual number of attendees was 10% higher than the budgeted number of attendees.
- The variable cost volume variance is $2,810 unfavorable. This means that the variable costs were $2,810 higher than the budgeted variable costs.
Slide 4: Flexible Budget Variances
- The flexible budget variance is $4,810 unfavorable. This means that the actual costs were $4,810 higher than the flexible budget costs.
- The unfavorable flexible budget variance can be further broken down into the following components:
- Meal cost variance: $4,810 unfavorable
- Speaker cost variance: $0 favorable
- Other costs variance: $0 favorable
Slide 5: Justifying the Budget Variances
- The favorable sales volume variance can be attributed to the fact that the actual number of attendees was 10% higher than the budgeted number of attendees.
- The unfavorable variable cost volume variance can be attributed to the fact that the actual variable costs were $2,810 higher than the budgeted variable costs. This is likely due to the fact that the association added a dessert to the meal, which increased the variable costs.
- The unfavorable flexible budget variance can be attributed to the unfavorable meal cost variance.
Slide 6: Why Meeting the Budget is Important
- Even though the Redmond Management Association is a not-for-profit organization, it is still important to meet the budget. This is because meeting the budget helps to ensure that the association has enough money to cover its expenses and to plan for future events.
- Additionally, meeting the budget can help to build trust with donors and sponsors. When donors and sponsors see that the association is responsible with its money, they are more likely to continue to support the association.
Slide 7: Recommendations for Staying on Budget
- To stay on budget in the future, the association can do the following:
- Carefully plan the event and make sure that the budget is realistic.
- Get quotes from multiple vendors before making any decisions.
- Monitor the budget closely throughout the event and make adjustments as needed.
- Be prepared for unexpected expenses.
Slide 8: Conclusion
- The Redmond Management Association had an unfavorable flexible budget variance of $4,810 for its annual public relations luncheon.
- The unfavorable variance can be attributed to the unfavorable meal cost variance.
- Meeting the budget is important for the association, even though it is a not-for-profit organization.
- The association can stay on budget in the future by carefully planning the event, getting quotes from multiple vendors, monitoring the budget closely, and being prepared for unexpected expenses.