Flexible Budget Preparation for the Redmond Management Association Luncheon''

Flexible Budget Preparation for the Redmond Management Association Luncheon Introduction A flexible budget is an essential tool for organizations to adjust their financial forecasts in response to actual activity levels. In this case, we will create a flexible budget for the Redmond Management Association's annual public relations luncheon based on the initial budget and actual results. Master Budget Preparation Before creating the flexible budget, we need to establish the master budget based on the anticipated sales volume and associated costs. Master Budget for Year 2 Luncheon - Total Budgeted Revenue: $25,290 - Estimated Number of Attendees: 300 - Revenue per Attendee: ( \frac{25290}{300} = 84.30 ) Estimated Costs - Variable Costs: - Catering: $20,000 - Marketing: $2,000 - Miscellaneous: $1,000 - Total Variable Costs: $23,000 - Fixed Costs: - Venue Rental: $2,290 - Total Fixed Costs: $2,290 - Total Budgeted Costs: ( $23,000 + $2,290 = $25,290 ) Flexible Budget Preparation To prepare a flexible budget, we will adjust the budgeted revenue and costs based on the actual number of attendees. For this example, let's assume the actual number of attendees was 350. Flexible Budget for 350 Attendees - Flexible Revenue: - Revenue = Number of Attendees * Revenue per Attendee - Revenue = ( 350 \times 84.30 = 29,505 ) - Variable Costs: - Catering (Assuming a cost of $66.67 per attendee):- Catering = ( 350 \times 66.67 = 23,334.50 ) - Marketing (Proportionate to attendees):- Marketing = ( \frac{2000}{300} \times 350 = 2,333.33 ) - Miscellaneous (Proportionate to attendees):- Miscellaneous = ( \frac{1000}{300} \times 350 = 1,166.67 ) - Total Variable Costs: ( 23,334.50 + 2,333.33 + 1,166.67 = 26,834.50 ) - Fixed Costs: Remain the same at $2,290. - Total Flexible Budget Costs: ( 26,834.50 + 2,290 = 29,124.50 ) Summary of Flexible Budget Item Amount Revenue $29,505 Variable Costs $26,834.50 Fixed Costs $2,290 Total Costs $29,124.50 Variance Analysis Now that we have our flexible budget and master budget, we can calculate the variances. Sales Volume Variance The sales volume variance measures the difference between the master budget and flexible budget revenues due solely to the change in sales volume. - Sales Volume Variance = Flexible Revenue - Master Revenue - ( = 29,505 - 25,290 = 2,215 ) (Favorable) Variable Cost Volume Variance This variance measures the difference in variable costs between the master and flexible budgets due to changes in sales volume. Assuming variable costs are directly proportional to the number of attendees: - Variable Cost Volume Variance = Flexible Variable Costs - Master Variable Costs - ( = 26,834.50 - 23,000 = 3,834.50 ) (Unfavorable) Flexible Budget Variances Lastly, we need to compute variances by comparing the flexible budget with actual results. Let’s assume the actual results are as follows: - Actual Revenue: $28,000 - Actual Variable Costs: $27,000 Revenue Variance - Revenue Variance = Actual Revenue - Flexible Revenue - ( = 28,000 - 29,505 = -1,505 ) (Unfavorable) Variable Cost Variance - Variable Cost Variance = Actual Variable Costs - Flexible Variable Costs - ( = 27,000 - 26,834.50 = 165.50 ) (Unfavorable) Conclusion The flexible budgeting approach allows the Redmond Management Association to adjust its financial performance metrics based on actual attendance while providing valuable insights into variances that arise from changes in volume and costs. By analyzing these variances effectively, management can make informed decisions to enhance future budgeting and operational efficiency. This structured analysis provides a clear understanding of how flexible budgets work and how variances can be calculated and interpreted.  

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