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 50 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 $ 3,080 Classroom supplies $ 260 Utilities $ 870 $ 130 Campus rent $ 4,200 Insurance $ 1,890 Administrative expenses $ 3,270 $ 15 $ 4 For example, administrative expenses should be $3,270 per month plus $15 per course plus $4 per student. The company’s sales should average $800 per student. The company planned to run three courses with a total of 45 students; however, it actually ran three courses with a total of only 42 students. The actual operating results for September appear below: Actual Revenue $ 32,400 Instructor wages $ 9,080 Classroom supplies $ 8,540 Utilities $ 1,530 Campus rent $ 4,200 Insurance $ 1,890 Administrative expenses $ 3,790 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

1
	Planning Budget
	For the month ended September 30
Budgeted Courses	3
Budgeted Students	45
Revenue	36000	=45*800
Expenses:
Instructor wages	9240	=3*3080
Classroom supplies	11700	=45*260
Utilities	1260	=870+(3*130)
Campus rent	4200
Insurance	1890
Administrative expenses	3495	=3270+(3*15)+(45*4)
Total expense	31785
Net operating income	4215
2
	Flexible Budget
	For the month ended September 30
Actual Courses	3
Actual Students	42
Revenue	33600	=42*800
Expenses:
Instructor wages	9240	=3*3080
Classroom supplies	10920	=42*260
Utilities	1260	=870+(3*130)
Campus rent	4200
Insurance	1890
Administrative expenses	3483	=3270+(3*15)+(42*4)
Total expense	30993
Net operating income	2607
3
	Actual results	Revenue and spending variance		Flexible budget
Courses	3			3
Students	42			42
Revenue	32400	1200	U	33600
Expenses:
Instructor wages	9080	160	F	9240
Classroom supplies	8540	2380	F	10920
Utilities	1530	270	U	1260
Campus rent	4200	0	None	4200
Insurance	1890	0	None	1890
Administrative expenses	3790	307	U	3483
Total expense	29030	1963	F	30993
Net operating income	3370	763	F	2607