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 60 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			$	2,920
Classroom supplies					$	280
Utilities	$	1,240	$	65
Campus rent	$	5,100
Insurance	$	2,200
Administrative expenses	$	3,800	$	42	$	5

For example, administrative expenses should be $3,800 per month plus $42 per course plus $5 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 60 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

	Actual
Revenue	$	49,900
Instructor wages	$	10,960
Classroom supplies	$	16,650
Utilities	$	1,910
Campus rent	$	5,100
Insurance	$	2,340
Administrative expenses	$	3,694

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

Gourmand Cooking School

Planning budget

For the month ended September 30

Revenue	52800
Expenses:
Instructor wages	11680
Classroom supplies	16800
Utilities	1500
Campus rent	5100
Insurance	2200
Administrative expenses	4268
Total expense	41548
Net operating income	11252

Revenue (880*60) = 52800

Instructor wages (2920*4) = 11680

Classroom supplies ($280 × 60) = $16,800

Utilities ($1,240 + ($65 × 4)) = $1,500

Administrative expenses ($3800 + ($42 × 4) + ($5 × 60)) = $4268

Part 2

Gourmand Cooking School

Flexible budget

For the month ended September 30

Revenue	49280
Expenses:
Instructor wages	11680
Classroom supplies	15680
Utilities	1500
Campus rent	5100
Insurance	2200
Administrative expenses	4248
Total expense	40408
Net operating income	8872

Revenue (880*56) = 49280

Instructor wages (2920*4) = 11680

Classroom supplies ($280 × 56) = $15680

Utilities ($1,240 + ($65 × 4)) = $1,500

Administrative expenses ($3800 + ($42 × 4) + ($5 × 56)) = $4248

Part 3

Gourmand Cooking School

Flexible budget performance report

For the month ended September 30

	Revenue and spending variances		Activity Variances
Revenue	620	F	3520	F
Expenses:
Instructor wages	720	F	0	NONE
Classroom supplies	970	U	1120	F
Utilities	410	U	0	NONE
Campus rent	0	NONE	0	NONE
Insurance	140	U	0	NONE
Administrative expenses	554	F	20	F
Total expense	246	U	1140	F
Net operating income	374	F	2380	F

	Actual results	Revenue and spending variances	Flexible Budget		Activity Variances	Planning Budget
Courses (q1)	4			4		4
Students (q2)	56			56		60
Revenue($880q2)	49900	620 F		49280	3520 F	52800
Expenses:
Instructor wages (2920q1)	10960	720 F		11680	0 none	11680
Classroom supplies (280q2)	16650	970 U		15680	1120 F	16800
Utilities ($1,240 + $65q1)	1910	410 U		1500	0 none	1500
Campus rent	5100	0 None		5100	0 none	5100
Insurance	2340	140 U		2200	0 none	2200
Administrative expenses ($3800 + $42q1 +$5q2)	3694	554 F		4248	20 F	4268
Total expense	40654	246 U		40408	1140 F	41548
Net operating income	9246	374 F		8872	2380 F	11252