Question

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that 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	$	1,250	$	85
Campus rent	$	5,100
Insurance	$	2,200
Administrative expenses	$	3,600	$	45	$	6

  

For example, administrative expenses should be $3,600 per month plus $45 per course plus $6 per student. The company’s sales should average $870 per student.

  

The actual operating results for September appear below:

  

		Actual
Revenue	$	49,300
Instructor wages	$	10,960
Classroom supplies	$	16,650
Utilities	$	2,000
Campus rent	$	5,100
Insurance	$	2,340
Administrative expenses	$	3,566

  

Required:
1.	The Gourmand Cooking School expects to run four courses with a total of 60 students in September. Complete the company’s planning budget for this level of activity.

     

2.	The school actually ran four courses with a total of 58 students in September. Complete the company’s flexible budget for this level of activity.

     

3.

Complete the 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

				planning
				budget
Courses				4
Students				60
Revenues				52200
Expenses
Instructor wages				11680
Classroom supplies				16800
Utilities				1590
Campus rent				5,100
insurance				2,200
Administrative expenses				4140
total expense				41510
net operating income				10690

				Flexible
				budget
Courses				4
Students				58
Revenues				50460
Expenses
Instructor wages				11680
Classroom supplies				16240
Utilities				1590
Campus rent				5,100
insurance				2,200
Administrative expenses				4128
total expense				40938
net operating income				9522

		Actual	Revenue & spending		Flexible	Activity variance		planning
		Results	Variance		budget			budget
Courses		4			4			4
Students		58			58			60
Revenues		49,300	1,160	U	50460	1740	U	52200
Expenses
Instructor wages		10,960	720	F	11680	0	N	11680
Classroom supplies		16,650	410	U	16240	560	F	16800
Utilities		2,000	410	U	1590	0	N	1590
Campus rent		5,100	0	N	5,100	0	N	5,100
insurance		2,340	140	U	2,200	0	N	2,200
Administrative expenses		3,566	562	F	4128	12	F	4140
total expense		40,616	322	F	40938	572	F	41510
net operating income		8,684	838	U	9522	1168	U	10690