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 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

Answer 1

		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