Question

In: Accounting

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two...

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 $ 2,930
Classroom supplies $ 280
Utilities $ 1,240 $ 75
Campus rent $ 4,700
Insurance $ 2,400
Administrative expenses $ 3,800 $ 44 $ 3

For example, administrative expenses should be $3,800 per month plus $44 per course plus $3 per student. The company’s sales should average $860 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 57 students. The actual operating results for September appear below:

Actual
Revenue $ 51,280
Instructor wages $ 11,000
Classroom supplies $ 17,490
Utilities $ 1,950
Campus rent $ 4,700
Insurance $ 2,540
Administrative expenses $ 3,591

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.)

Solutions

Expert Solution

Actual Revenue & spending Flexible Activity variance planning
Results Variance budget budget
Courses 4 4 4
Students 57 57 63
Revenues 51,280 2,260 F 49020 5160 U 54180
Expenses
Instructor wages 11,000 720 F 11720 0 N 11720
Classroom supplies 17,490 1,530 U 15960 1680 F 17640
Utilities 1,950 410 U 1540 0 N 1540
Campus rent 4,700 0 N 4,700 0 N 4,700
insurance 2,540 140 U 2,400 0 N 2,400
Administrative expenses 3,591 556 F 4147 18 F 4165
total expense 41,271 804 U 40467 1698 F 42165
net operating income 10,009 1,456 F 8553 3462 U 12015
formula for planning budget = fixed cost per month + 4courses*cost per course +63 students *cost per student
formula for flexible budget = fixed cost per month + 4courses*cost per course +57 students *cost per student

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