1-A2 Management by Exception
Beta Alpha Psi (BAP), the accounting honorary fraternity, held a homecoming party. The fraternity expected attendance of 70 persons and prepared the following budget:
Room rental $ 140
Food $ 700
Entertainment $ 600
Decorations $ 220
After BAP paid all the bills for the party, the total cost came to $1,835, or $175 over budget. Details are: $140 for room rental; $905 for food; $600 for entertainment; and $190 for decorations. Eighty-five persons attended the party.
1. Prepare a performance report for the party that shows how actual costs differed from the budget. That is, include in your report the budgeted amounts, actual amounts, and variances.
2. Suppose the fraternity uses a management-by-exception rule. Which costs deserve further examination? Why?
1. Budget Actual Deviations/Variances
Room rental 140 140 $ 0
Food 700 905 205 over
Entertainment 600 600 0
Decorations 220 190 30 under
Total $1,660 $1,835 $175 over
2. The ...
The solution answers both parts of the problem. It includes a chart showing the budget, the actual costs, and the variations (or deviations) from the budget. The chart is easier to read in the attachment, but can be read in the textbox. I also explained how to apply the exception rule to each budget item (or why not to apply it).