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 65 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			$	2,960
Classroom supplies					$	270
Utilities	$	1,210	$	70
Campus rent	$	4,700
Insurance	$	2,000
Administrative expenses	$	3,800	$	41	$	6

For example, administrative expenses should be $3,800 per month plus $41 per course plus $6 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 65 students; however, it actually ran four courses with a total of only 59 students. The actual operating results for September appear below:

	Actual
Revenue	$	53,650
Instructor wages	$	11,120
Classroom supplies	$	17,400
Utilities	$	1,900
Campus rent	$	4,700
Insurance	$	2,140
Administrative expenses	$	3,780

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.)

	Gourmand Cooking School Flexible Budget Performance Report For the Month Ended September 30 Actual Results Flexible Budget Planning Budget Courses 4 Students 59 Revenue $53,650 Expenses: Instructor wages 11,120 Classroom supplies 17,400 Utilities 1,900 Campus rent 4,700 Insurance 2,140 Administrative expenses 3,780 Total expense 41,040 Net operating income $12,610

Answer 1

• All working forms part of the answer
• Variable cost will change with change in no. of course and students
• Requirement

Gourmand Cooking School
Flexible Budget Performance Report
For the Month Ended September 30
	Actual Results	Variance		Flexible Budget	Variance		Planning Budget
Courses	4	0	None	4	0	None	4
Students	59	0	None	59	6	Unfavourable	65
Revenue	$                 53,650.00	$                   2,320.00	Favourable	$               51,330.00	$               5,220.00	Unfavourable	$      56,550.00
Expenses:
Instructor wages	$                 11,120.00	$                       720.00	Favourable	$               11,840.00	$                            -	None	$      11,840.00
Classroom supplies	$                 17,400.00	$                   1,470.00	Unfavourable	$               15,930.00	$               1,620.00	Favourable	$      17,550.00
Utilities	$                    1,900.00	$                       410.00	Unfavourable	$                  1,490.00	$                            -	None	$        1,490.00
Campus rent	$                    4,700.00	$                                -	None	$                  4,700.00	$                            -	None	$        4,700.00
Insurance	$                    2,140.00	$                       140.00	Unfavourable	$                  2,000.00	$                            -	None	$        2,000.00
Administrative expenses	$                    3,780.00	$                       538.00	Favourable	$                  4,318.00	$                     36.00	Favourable	$        4,354.00
Total expense	$                 41,040.00	$                       762.00	Unfavourable	$               40,278.00	$               1,656.00	Favourable	$      41,934.00
Net operating income	$                 12,610.00	$                   1,558.00	Favourable	$               11,052.00	$               3,564.00	Unfavourable	$      14,616.00

• Formulas used to get the above Flexible and planning Budget data

	Actual Results	Flexible Budget	Planning Budget
Courses	4	4	4
Students	59	59	65
Revenue	53650	=59*870	=65*870
Expenses:
Instructor wages	11120	=2960*4	=2960*4
Classroom supplies	17400	=270*59	=270*65
Utilities	1900	=1210+(70*4)	=1210+(70*4)
Campus rent	4700	4700	4700
Insurance	2140	2000	2000
Administrative expenses	3780	=3800+(41*4)+(6*59)	=3800+(41*4)+(6*65)