Question

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 64 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

   

	Fixed Cost per Month		Cost per Course		Cost per Student
Instructor wages			$	2,940
Classroom supplies					$	290
Utilities	$	1,220	$	85
Campus rent	$	4,600
Insurance	$	2,000
Administrative expenses	$	3,600	$	42	$	6

  

For example, administrative expenses should be $3,600 per month plus $42 per course plus $6 per student. The company’s sales should average $880 per student.

  

The actual operating results for September appear below:

  

		Actual
Revenue	$	53,420
Instructor wages	$	11,040
Classroom supplies	$	18,410
Utilities	$	1,970
Campus rent	$	4,600
Insurance	$	2,140
Administrative expenses	$	3,578

  

Required:
1.	The Gourmand Cooking School expects to run four courses with a total of 64 students in September. Complete the company’s planning budget for this level of activity.

      

2.	The school actually ran four courses with a total of 60 students in September. Complete the company’s flexible budget for this level of activity.

      

3.	Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for September. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

     

Answer 1

		Actual	Revenue & spending		Flexible	Activity variance		planning
		Results	Variance		budget			budget
Courses		4			4			4
Students		60			60			64
Revenues		53,420	620	F	52800	3520	U	56320
Expenses
Instructor wages		11,040	720	F	11760	0	N	11760
Classroom supplies		18,410	1,010	U	17400	1160	F	18560
Utilities		1,970	410	U	1560	0	N	1560
Campus rent		4,600	0	N	4,600	0	N	4,600
insurance		2,140	140	U	2,000	0	N	2,000
Administrative expenses		3,578	550	F	4128	24	F	4152
total expense		41,738	290	U	41448	1184	F	42632
net operating income		11,682	330	F	11352	2336	U	13688
formula for planning budget = fixed cost per month + 4courses*cost per course +64 students *cost per student
formula for flexible budget = fixed cost per month + 4courses*cost per course +60 students *cost per student