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 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			$	2,950
Classroom supplies					$	270
Utilities	$	1,220	$	90
Campus rent	$	4,600
Insurance	$	2,200
Administrative expenses	$	4,000	$	44	$	5

For example, administrative expenses should be $4,000 per month plus $44 per course plus $5 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 60 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,780
Instructor wages	$	11,080
Classroom supplies	$	17,130
Utilities	$	1,990
Campus rent	$	4,600
Insurance	$	2,340
Administrative expenses	$	3,922

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

Part-1: Plannng Budget
Particulars	Planning Budget
Courses	4
Student	64
Revenue	$55,680.00
Expenses:
Instructor Wages	$2,950.00
Classroom Supplies	$17,280.00
Utilities	$1,580.00
Campus Rent	$4,600.00
Insurance	$2,200.00
Administrative Expenses	$4,496.00
Total Expense	$33,106.00
Net Operatign Income	$22,574.00
Part-2: Flexible Budget
Particulars	Flexible Budget
Courses	4
Student	60
Revenue	$52,200.00
Expenses:
Instructor Wages	$2,950.00
Classroom Supplies	$16,200.00
Utilities	$1,580.00
Campus Rent	$4,600.00
Insurance	$2,200.00
Administrative Expenses	$4,476.00
Total Expense	$32,006.00
Net Operatign Income	$20,194.00

Part-3 : Revenue and Spending Variance
Particulars	Actual	Revenue and spending variances	Flexible Budget
Courses	4			4
Student	60			60
Revenue	$52,780.00	$580.00	F	$52,200.00
Expenses:
Instructor Wages	$11,080.00	$8,130.00	U	$2,950.00
Classroom Supplies	$17,130.00	$930.00	U	$16,200.00
Utilities	$1,990.00	$410.00	U	$1,580.00
Campus Rent	$4,600.00	$0.00	None	$4,600.00
Insurance	$2,340.00	$140.00	U	$2,200.00
Administrative Expenses	$3,922.00	$554.00	F	$4,476.00
Total Expense	$41,062.00	$9,056.00	U	$32,006.00
Net Operatign Income	$11,718.00	$8,476.00	U	$20,194.00