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			$	2,940
Classroom supplies					$	270
Utilities	$	1,240	$	55
Campus rent	$	5,100
Insurance	$	2,100
Administrative expenses	$	3,800	$	41	$	5

For example, administrative expenses should be $3,800 per month plus $41 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 65 students; however, it actually ran four courses with a total of only 55 students. The actual operating results for September appear below:

	Actual
Revenue	$	53,650
Instructor wages	$	11,040
Classroom supplies	$	17,400
Utilities	$	1,870
Campus rent	$	5,100
Insurance	$	2,240
Administrative expenses	$	3,715

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

Answer-1)-

GOURMAND COOKING SCHOOL
PLANNING BUDGET
For the month ended September
Particulars		Flexible Budget
		$
Revenue	65 students*$870 per student	56550
Less:-Expenses
Instructor wages	4 courses*$2940 per course	1176
Classroom supplies	65 students*$270 per student	17550
Utilities	(4 courses*$55 per course)+$1240	1430
Campus rent		5100
Insurance		2000
Administrative expenses	(4 courses*$41 per course)+(65 students*$5 per student)+$3800	4289
Total Expenses		31545
Income from operations		25005

2)-

GOURMAND COOKING SCHOOL
FLEXIBLE BUDGET
For the month ended September
Particulars		Flexible Budget
		$
Revenue	55 students*$870 per student	47850
Less:-Expenses
Instructor wages	4 courses*$2940 per course	11760
Classroom supplies	55 students*$270 per student	14850
Utilities	(4 courses*$55 per course)+$1240	1460
Campus rent		5100
Insurance		2100
Administrative expenses	(4 courses*$41 per course)+(55 students*$5 per student)+$3800	4239
Total Expenses		39509
Income from operations		8341

3)-

GOURMAND COOKING SCHOOL
Revenue & Spending Variances
For the month ended September
Particulars		Flexible Budget	Actual Results	Variances	Remark
		$	$	$
Revenue	55 students*$870 per student	47850	53650	5800	Favorable
Less:-Expenses
Instructor wages	4 courses*$2940 per course	11760	11040	720	Favorable
Classroom supplies	55 students*$270 per student	14850	17400	-2550	Unfavorable
Utilities	(4 courses*$55 per course)+$1240	1460	1870	-410	Unfavorable
Campus rent		5100	5100	0	None
Insurance		2100	2240	-140	Unfavorable
Administrative expenses	(4 courses*$41 per course)+(55 students*$5 per student)+$3800	4239	3715	524	Favorable
Total Expenses		39509	41365	-1856	Unfavorable
Income from operations		8341	12285	3944	Favorable