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 64 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			$	2,900
Classroom supplies					$	260
Utilities	$	1,250	$	55
Campus rent	$	5,200
Insurance	$	2,300
Administrative expenses	$	3,600	$	43	$	4

For example, administrative expenses should be $3,600 per month plus $43 per course plus $4 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,780
Instructor wages	$	10,880
Classroom supplies	$	16,490
Utilities	$	1,880
Campus rent	$	5,200
Insurance	$	2,440
Administrative expenses	$	3,454

Required:

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

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
Revenue	55680	=64*870
Expenses:
Instructor wages	11600	=4*2900
Classroom supplies	16640	=64*260
Utilities	1470	=1250+(4*55)
Campus rent	5200
Insurance	2300
Administrative expenses	4028	=3600+(4*43)+(64*4)
Total expense	41238
Net operating income	14442
2
	Flexible Budget
	For the month ended September 30
Revenue	48720	=56*870
Expenses:
Instructor wages	11600	=4*2900
Classroom supplies	14560	=56*260
Utilities	1470	=1250+(4*55)
Campus rent	5200
Insurance	2300
Administrative expenses	3996	=3600+(4*43)+(56*4)
Total expense	39126
Net operating income	9594
3
	Revenue and spending variance
Revenue	4060	F
Expenses:
Instructor wages	720	F
Classroom supplies	1930	U
Utilities	410	U
Campus rent	0	None
Insurance	140	U
Administrative expenses	542	F
Total expense	1218	U
Net operating income	2842	F
Workings for 3:
	Actual results	Revenue and spending variance		Flexible budget
Courses	4			4
Students	56			56
Revenue	52780	4060	F	48720
Expenses:
Instructor wages	10880	720	F	11600
Classroom supplies	16490	1930	U	14560
Utilities	1880	410	U	1470
Campus rent	5200	0	None	5200
Insurance	2440	140	U	2300
Administrative expenses	3454	542	F	3996
Total expense	40344	1218	U	39126
Net operating income	12436	2842	F	9594