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			$	2,930
Classroom supplies					$	290
Utilities	$	1,210	$	85
Campus rent	$	4,900
Insurance	$	2,200
Administrative expenses	$	3,600	$	40	$	3

For example, administrative expenses should be $3,600 per month plus $40 per course plus $3 per student. The company’s sales should average $880 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 were as follows:

	Actual
Revenue	$	52,540
Instructor wages	$	11,000
Classroom supplies	$	18,120
Utilities	$	1,960
Campus rent	$	4,900
Insurance	$	2,340
Administrative expenses	$	3,375

Required:

Prepare a 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

Calculation:
Flexible Budget:
Revenue = $880 * 59 = $51,920
Instructor Wages = $2,930 * 4 =$11,720
Classroom Supplies = $290 * 59 = $17,110
Utilities = $1,210 + ($85 * 4) = $1,550
Administrative Expenses = $3,600 + ($40 * 4) + ($3 * 59) = $3,937

Planning Budget:
Revenue = $880 * 63 = $55,440
Instructor Wages = $2,930 * 4 =$11,720
Classroom Supplies = $290 * 63 = $18,270
Utilities = $1,210 + ($85 * 4) = $1,550
Administrative Expenses = $3,600 + ($40 * 4) + ($3 * 63) = $3,949