Question

In: Accounting

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two...

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 60 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 $ 2,950
Classroom supplies $ 280
Utilities $ 1,250 $ 90
Campus rent $ 4,700
Insurance $ 2,300
Administrative expenses $ 3,500 $ 45 $ 5

For example, administrative expenses should be $3,500 per month plus $45 per course plus $5 per student. The company’s sales should average $900 per student.

The company planned to run four courses with a total of 60 students; however, it actually ran four courses with a total of only 54 students. The actual operating results for September were as follows:

Actual
Revenue $ 51,100
Instructor wages $ 11,080
Classroom supplies $ 16,650
Utilities $ 2,020
Campus rent $ 4,700
Insurance $ 2,440
Administrative expenses $ 3,406

Solutions

Expert Solution

Actual Revenue & spending Flexible Activity variance planning
Results Variance budget budget
Courses 4 4 4
Students 54 54 60
Revenues 51,100 2,500 F 48600 5400 U 54000
Expenses
Instructor wages 11,080 720 F 11800 0 N 11800
Classroom supplies 16,650 1,530 U 15120 1680 F 16800
Utilities 2,020 410 U 1610 0 N 1610
Campus rent 4,700 0 N 4,700 0 N 4,700
insurance 2,440 140 U 2,300 0 N 2,300
Administrative expenses 3,406 544 F 3950 30 F 3980
total expense 40,296 816 U 39480 1710 F 41190
net operating income 10,804 1,684 F 9120 3690 U 12810
formula for planning budget = fixed cost per month + 4courses*cost per course +60 students *cost per student
formula for flexible budget = fixed cost per month + 4courses*cost per course +54 students *cost per student
1) Planning Budget
planning
budget
Courses 4
Students 60
Revenues 54000
Expenses
Instructor wages 11800
Classroom supplies 16800
Utilities 1610
Campus rent 4,700
insurance 2,300
Administrative expenses 3980
total expense 41190
net operating income 12810
2)
Flexible
budget
Courses 4
Students 54
Revenues 48600
Expenses
Instructor wages 11800
Classroom supplies 15120
Utilities 1610
Campus rent 4,700
insurance 2,300
Administrative expenses 3950
total expense 39480
net operating income 9120

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