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 63 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			$	2,970
Classroom supplies					$	280
Utilities	$	1,210	$	50
Campus rent	$	4,500
Insurance	$	2,000
Administrative expenses	$	3,700	$	46	$	7

For example, administrative expenses should be $3,700 per month plus $46 per course plus $7 per student. The company’s sales should average $850 per student.

The company planned to run four courses with a total of 63 students; however, it actually ran four courses with a total of only 59 students. The actual operating results for September appear below:

	Actual
Revenue	$	50,650
Instructor wages	$	11,160
Classroom supplies	$	17,490
Utilities	$	1,820
Campus rent	$	4,500
Insurance	$	2,140
Administrative expenses	$	3,751

Required:

1. Prepare the company’s planning budget for September.

Prepare the company’s planning budget for September.

	Gourmand Cooking School Planning Budget For the Month Ended September 30 Revenue Expenses: Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses Total expense Net operating income

2. Prepare the company’s flexible budget for September.

Prepare the company’s flexible budget for September.

	Gourmand Cooking School Flexible Budget For the Month Ended September 30 Revenue Expenses: Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses Total expense Net operating income

3. Calculate the revenue and spending

Gourmand Cooking School Revenue and Spending Variances For the Month Ended September 30 Actual Results Revenue and Spending Variances Flexible Budget Courses 4 Students 59 Revenue $50,650 Expenses: Instructor wages 11,160 Classroom supplies 17,490 Utilities 1,820 Campus rent 4,500 Insurance 2,140 Administrative expenses 3,751 Total expense 40,861 Net operating income $9,789

Answer 1

Ans.	GOURMAND COOKING SCHOOL
	Flexible Budget Performance Report
	For the Month Ended September 30
		Actual Results	Revenue & Spending variance		Flexible budget	Volume variance		Planning Budget
	Courses	4			4			4
	Students	59			59			63
	Revenue	$50,650	$500	F	$50,150	$3,400	U	$53,550
	Less: Expenses:
	Instructor wages	$11,160	$720	F	$11,880	$0	none	$11,880
	Classroom supplies	$17,490	$970	U	$16,520	$1,120	F	$17,640
	Utilities	$1,820	$410	U	$1,410	$0	none	$1,410
	Campus rent	$4,500	$0	none	$4,500	$0	none	$4,500
	Insurance	$2,140	$140	U	$2,000	$0	none	$2,000
	Administrative expenses	$3,751	$546	F	$4,297	$28	F	$4,325
	Total expenses	$40,861	$254	U	$40,607	$1,148	F	$41,755
	Net operating income	$9,789	$246	F	$9,543	$2,252	U	$11,795
	*Calculations for Flexible budget & Planning budget:
			Flexible budget		Planning budget
	Courses		4		4
	Students		59		63
	Revenue		59 * $850		63 * $850
	Less: Expenses:
	Instructor wages		$2,970 * 4		$2,970 * 4
	Classroom supplies		$280 * 59		$280 * 63
	Utilities		$1,210 + ($50 * 4)		$1,210 + ($50 * 4)
	Campus rent		$4,500		$4,500
	Insurance		$2,000		$2,000
	Administrative expenses		$3,700 + ($46*4) + ($7*59)		$3,700 + ($46*4) + ($7*63)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.