The International Students Club at Eastern University recently held an end-of-year dinner and swim party, which the treasurer declared to be a financial success. "Attendance was an all-time high, 60 members, and the results were much better than expected." The treasurer presented the following performance report at the executive board's June meeting:?BudgetActualVarianceRevenue$1,575$2,205$630FFood$675$870$195UBeverages315480165UDisc jockey15017525UFacility rental200200--- Total costs$1,340$1,725$385U Profit$235$480$245FThe budget was based on the assumptions that follow.· Forty-five members would attend at a fixed ticket price of $35.· Food and beverage costs were anticipated to be $15 and $7 per attendee, respectively.· A disc jockey was hired via a written contract at $50 per
hour.Required: A. Briefly evaluate the meaningfulness of the treasurer's performance report.B. Prepare a performance report by using flexible budgeting and determine whether the end-of-year party was as successful as originally reported.C. Based on your answer in requirement "B," present a possible explanation for the variances in revenue, food costs, beverage costs, and the disc jockey.
What will be an ideal response?
A. The performance report is not very meaningful, as it was prepared based on the original estimate that 45 tickets would be sold. With 60 members in attendance, the resulting report compares anticipated revenues, costs, and profit at one level of activity against actual amounts at a totally different volume. In effect, it's a comparison of apples vs. oranges.
B. The end-of-year party was successful as the treasurer claimed, as it netted the International Students Club $480. However, when actual results are compared against what should have happened for the increased number of attendees (60), the overall profitability was only $50 greater than expected.
| ? | Budget | Actual | Variance |
| Revenue* | $2,100 | $2,205 | $105F |
| Food* | $900 | $870 | $30F |
| Beverages* | 420 | 480 | 60U |
| Disc jockey | 150 | 175 | 25U |
| Facility rental | 200 | 200 | --- |
| Total costs | $1,670 | $1,725 | $55U |
| Profit | $430 | $480 | $50F |
*Revenue, food, and beverage figures ($35, $15, and $7, respectively) are all based on 60 attendees.
C. Revenue ($105F)-Three members who purchased tickets didn't attend ($105 ÷ $35 = 3);
the Club received a donation from the University or the faculty advisor to help offset operating costs.
Food ($30F)-The actual food cost per person was less than expected; attendees ate less than expected.
Beverages ($60U)-The actual beverage cost was more than expected; attendees drank more than expected.
Disc jockey ($25U)-The disc jockey played music for 3.5 hours (3.5 × $50 = $175) rather than the 3 hours that were originally budgeted.
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