Question

Exercise 9-12 Working with More Than One Cost Driver [LO9-1, LO9-2, LO9-3]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 63 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			$	2,960
Classroom supplies					$	270
Utilities	$	1,210	$	80
Campus rent	$	4,800
Insurance	$	2,300
Administrative expenses	$	3,800	$	42	$	7

For example, administrative expenses should be $3,800 per month plus $42 per course plus $7 per student. The company’s sales should average $890 per student.The company planned to run four courses with a total of 63 students; however, it actually ran four courses with a total of only 55 students. The actual operating results for September appear below:

	Actual
Revenue	$	53,170
Instructor wages	$	11,120
Classroom supplies	$	16,860
Utilities	$	1,940
Campus rent	$	4,800
Insurance	$	2,440
Administrative expenses	$	3,835

Required: 1. Prepare the company’s planning budget for September.2. Prepare the company’s flexible budget for September.3. Calculate the revenue and spending variances for September.

Answer 1

The Gourmand Cooking School
Flexible Budget performance report
		Planning Budget	Flexible Budget
Number of course	x	4	4
Number of students	y	63	55
Revenue	($890 * y)	$ 56,070	$ 48,950
Expenses:
Instructor wages	($2,960* x)	$ 11,840	$ 11,840
Classroom supplies	($270 * y)]	$ 17,010	$ 14,850
Utilities	($80*x) + $1,210	$    1,530	$    1,530
Campus rent	$4,800	$    4,800	$    4,800
Insurance	$2,300	$    2,300	$    2,300
Administrative Expenses	($42*x) + ($7 * y) + $3,800	$    4,409	$    4,353
Total expense		$ 41,889	$ 39,673
Net operating income		$ 14,181	$    9,277
The Gourmand Cooking School
Flexible Budget performance report
		Flexible Budget	Actual results	Revenue and Spending Variances
Number of course	x	4	4
Number of students	y	55	55
Revenue	($890 * y)	48,950	$ 53,170	$   4,220	U
Expenses:
Instructor wages	($2,960* x)	11,840	$ 11,120	$      720	F
Classroom supplies	($270 * y)]	14,850	$ 16,860	$   2,010	U
Utilities	($80*x) + $1,210	1,530	$    1,940	$      410	U
Campus rent	$4,800	4,800	$    4,800	$          -	None
Insurance	$2,300	2,300	$    2,440	$      140	U
Administrative Expenses	($42*x) + ($7 * y) + $3,800	4,353	$    3,835	$      518	F
Total expense		39,673	$ 40,995	$   1,322	U
Net operating income		9,277	$ 12,175	$   2,898	F