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 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							$	270
Utilities	$	1,240		$	75
Campus rent	$	5,000
Insurance	$	2,000
Administrative expenses	$	3,700		$	45		$	5

For example, administrative expenses should be $3,700 per month plus $45 per course plus $5 per student. The company’s sales should average $890 per student.

The actual operating results for September appear below:

	Actual
Revenue	$	54,060
Instructor wages	$	10,880
Classroom supplies	$	17,130
Utilities	$	1,950
Campus rent	$	5,000
Insurance	$	2,140
Administrative expenses	$	3,626

Required:

1. The Gourmand Cooking School expects to run four courses with a total of 64 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 56 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

Ans. 1	GOURMAND COOKING SCHOOL
	Planning Budget
	For the Month Ended September 30
	Courses	4	4
	Students	64	64
	Revenue	64 * $890	$56,960
	Less: Expenses:
	Instructor wages	$2,900 * 4	$11,600
	Classroom supplies	64 * $270	$17,280
	Utilities	$1,240 + ($75 * 4)	$1,540
	Campus rent	$5,000	$5,000
	Insurance	$2,000	$2,000
	Administrative expenses	$3,700 + ($45*4) + ($5*64)	$4,200
	Total expenses		$41,620
	Net operating income		$15,340
Ans. 2	GOURMAND COOKING SCHOOL
	Flexible Budget
	For the Month Ended September 30
	Courses	4	4
	Students	56	56
	Revenue	56 * $890	$49,840
	Less: Expenses:
	Instructor wages	$2,900 * 4	$11,600
	Classroom supplies	56 * $270	$15,120
	Utilities	$1,240 + ($75 * 4)	$1,540
	Campus rent	$5,000	$5,000
	Insurance	$2,000	$2,000
	Administrative expenses	$3,700 + ($45*4) + ($5*56)	$4,160
	Total expenses		$39,420
	Net operating income		$10,420
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same on each level of activity.