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			$	2,940
Classroom supplies					$	290
Utilities	$	1,240	$	90
Campus rent	$	4,700
Insurance	$	2,300
Administrative expenses	$	3,900	$	44	$	5

For example, administrative expenses should be $3,900 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 56 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,780
Instructor wages	$	11,040
Classroom supplies	$	18,410
Utilities	$	2,010
Campus rent	$	4,700
Insurance	$	2,440
Administrative expenses	$	3,822

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September.

Answer 1

A flexible budget performance report that shows both revenue and spending variances and activity variances for September is as follows:

                                                   Gourmand Cooking School

                                                           Flexible Budget

                                  For month ended September

	Actual Result	Revenue and spending variances	Flexible Budget
Actual Students	56		56
Actual courses	4		4
Revenue	52,780	4,060 (F)	56 * $ 870 = 48,720
Expenses:
Instructor Wages	11,040	720 (F)	4 * $ 2,940 = 11,760
Classroom Supplies	18,410	2,170 (U)	56 * $290 = 16,240
Utilities	2,010	410(U)	$1,240 + ( 4 * $90) = 1,600
Campus rent	4,700	0	4,700
Insurance	2,440	140(U)	2,300
Administrative Expenses	3,822	534(F)	3,900+ (4*$44) +(56*$5) =$4,356
Total Expense	42,422	1,466(U)	40,956
Net Operating Income	$10,358	$2,594 (F)	$7,764