Old Magnet, your read of the numbers is pretty much on point. I'll respond to your specific points in order, then provide some additional explanation afterward.
Model sales actual of $33,298 versus budget of $57,775 for an unfavorable variance of $24,477.
Model sales have been very difficult for the past couple of years. Until 2008, our models sold very well, but with the economic downturn near the end of that year, sales of our models, which are very discretionary spending, effectively fell off the cliff.
To give some perspective, our average annual gross sales from models for 2005 through 2008 was $490,000 per year. During those years there was a gradual increase from $428,000 in 2005 through $620,000 in 2008. In 2009 our gross model sales revenue was $330,000, 2010 was $247,000, 2011 was $293,000 and 2012 was $237,000.
Through 2011, we produced at least one new model each year. Introduction of a new model brings in lots of new revenue because people who already own other models want to buy the new model. It also stimulates sales of our existing models, to some extent. The problem is that introduction of a new model also soaks up a lot of cash. Each new tractor model we initiate costs us about $250,000 in cash. That cash usually goes out in four installments over the nearly a year it takes between initiation of the project and release of the models for sale.
In 2011 we identified a problem which began accumulating after the downturn in 2008. Through 2008, we were spending between $100,000 and $200,000 per year on inventory, creating a new model every year. Each year, we were selling almost as many models as we were making, replenishing our cash reserves by repaying ourselves for the models made and contributing to our spending on other programs with the profit earned on the model sales.
After 2008, we continued spending that money on new models. Because of cost inflation in China, that spending was now between $175,000 and $250,000 per year on each new model. Our sales had fallen, however, and a lot of that cash spending was getting trapped in inventory. This meant each year our cash reserves declined, our ability to spend on other operations was impaired, and our bottom lines were getting worse. Looking at this picture in 2011, we decided that we needed to head in a different direction.
One reaction to the above economic picture was the change in staff and operating structure that the Board made in 2011 and continued in 2012. General and administrative costs had grown as our success grew in the models program through 2008. These costs don't include cost of goods sold or magazine or website production, but are just the basic costs of operating the Club, running the office, collecting and accounting for dues and some of our other smaller programs. In 2008 our general and administrative costs were $176,000, in 2009 they were $166,000, and in 2010 they were $215,000.
Acknowledgement of the change in cash made available from the models program was one of the main drivers for the change in office staff and other economizations we did in 2011 and after. Our 2011 general and administrative expense was $182,000, 2012 was $147,000 and the 2013 budget is $118,000. We are a little ahead of the budget for payroll as of May, but part of the reason for this has to do with how I put the budget together.
We pay salaries bi-weekly, meaning that twice per year, there are three paychecks per month. For us, that happened in January and again in July. I should have allowed for this within the budget, but instead, I budgeted for salaries evenly throughout the year. This means that when you compare the budget to the actual year to date through May, even if we are on track for the year, you will see a timing caused unfavorable variance year to date through May. If the rest of the year is on track, our payroll expense should balance out and we should just about meet the budget by the end of the year.
Stepping back to the budget of all general and administrative costs for the year to date 2013, we have expensed $60,000 against a budget of $47,000 for an unfavorable year to date variance of $14,000. This unfavorable is driven by several categories including Office Supplies at $3,700, Payroll at $6,000, repairs and maintenance at $1,500 and show costs at $7.600. I touched on the payroll timing variance above. The others, which total $12,800, are actually pretty much all associated with our unbudgeted Members' Event, which was held in April at the Caterpillar Visitors' Center in Peoria.
We decided in December of last year to hold this event after the budget was already approved. As such, it was not part of the normal budget. We planned the event to try to charge our members only for reimbursement of our costs, not to create a profit for the Club. This event generated the unbudgeted $17,000 in Show Revenues above as well as causing the $12,800 unfavorable variance in the general and administrative section, which is where most of the costs of putting the event on fell. We actually met our goal of not making, but not losing money on the event, because the event costs buried some under-budget areas in the general and administrative section. Total event revenue was the $17,000 while total actual event costs were $16,800, meaning we made just a small actual profit on the event.