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 65 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			$	2,910
Classroom supplies					$	270
Utilities	$	1,240	$	70
Campus rent	$	4,900
Insurance	$	2,200
Administrative expenses	$	3,500	$	45	$	6

For example, administrative expenses should be $3,500 per month plus $45 per course plus $6 per student. The company’s sales should average $850 per student.

The company planned to run four courses with a total of 65 students; however, it actually ran four courses with a total of only 61 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,350
Instructor wages	$	10,920
Classroom supplies	$	17,400
Utilities	$	1,930
Campus rent	$	4,900
Insurance	$	2,340
Administrative expenses	$	3,496

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.)

Answer 1

		Actual	Revenue & spending		Flexible	Activity variance		planning
		Results	Variance		budget			budget
Courses		4			4			4
Students		61			61			65
Revenues		52,350	500	F	51850	3400	U	55250
Expenses
Instructor wages		10,920	720	F	11640	0	N	11640
Classroom supplies		17,400	930	U	16470	1080	F	17550
Utilities		1,930	410	U	1520	0	N	1520
Campus rent		4,900	0	N	4,900	0	N	4,900
insurance		2,340	140	U	2,200	0	N	2,200
Administrative expenses		3,496	550	F	4046	24	F	4070
total expense		40,986	210	U	40776	1104	F	41880
net operating income		11,364	290	F	11074	2296	U	13370
formula for planning budget = fixed cost per month + 4courses*cost per course +65 students *cost per student
formula for flexible budget = fixed cost per month + 4courses*cost per course +61 students *cost per student