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 62 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			$	2,910
Classroom supplies					$	290
Utilities	$	1,220	$	75
Campus rent	$	4,600
Insurance	$	2,300
Administrative expenses	$	3,500	$	43	$	7

  

For example, administrative expenses should be $3,500 per month plus $43 per course plus $7 per student. The company’s sales should average $880 per student.

  

The actual operating results for September appear below:

  

		Actual
Revenue	$	51,660
Instructor wages	$	10,920
Classroom supplies	$	17,830
Utilities	$	1,930
Campus rent	$	4,600
Insurance	$	2,440
Administrative expenses	$	3,532

  

Required:
1.	The Gourmand Cooking School expects to run four courses with a total of 62 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 58 students in September. Complete the company’s flexible budget for this level of activity.

      

3.	Calculate the revenue and spending 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

	1)	Planning Budget
				planning
				budget
	Courses			4
	Students			62
	Revenues			54560
	Expenses
	Instructor wages			11640
	Classroom supplies			17980
	Utilities			1520
	Campus rent			4,600
	insurance			2,300
	Administrative expenses			4106
	total expense			42146
	net operating income			12414
	2)
				Flexible
				budget
	Courses			4
	Students			58
	Revenues			51040
	Expenses
	Instructor wages			11640
	Classroom supplies			16820
	Utilities			1520
	Campus rent			4,600
	insurance			2,300
	Administrative expenses			4078
	total expense			40958
	net operating income			10082

		Actual	Revenue & spending		Flexible
		Results	Variance		budget
Courses		4			4
Students		58			58
Revenues		51,660	620	F	51040
Expenses
Instructor wages		10,920	720	F	11640
Classroom supplies		17,830	1,010	U	16820
Utilities		1,930	410	U	1520
Campus rent		4,600	0	N	4,600
insurance		2,440	140	U	2,300
Administrative expenses		3,532	546	F	4078
total expense		41,252	294	U	40958
net operating income		10,408	326	F	10082