Question

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers 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 62 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			$	2,900
Classroom supplies					$	260
Utilities	$	1,210	$	80
Campus rent	$	4,700
Insurance	$	2,400
Administrative expenses	$	3,800	$	43	$	6

For example, administrative expenses should be $3,800 per month plus $43 per course plus $6 per student. The company’s sales should average $900 per student.

The company planned to run four courses with a total of 62 students; however, it actually ran four courses with a total of only 54 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,900
Instructor wages	$	10,880
Classroom supplies	$	15,970
Utilities	$	1,940
Campus rent	$	4,700
Insurance	$	2,540
Administrative expenses	$	3,770

Required:

Prepare a 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

*Flexible budget is prepared on the basis of actual units.
*Fixed expenses remain same as master budget.
Revenue & Spending variance   =   Actual results - Flexible budget
Activity variance =   Flexible budget - Planning budget
*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.