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 64 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			$	2,940
Classroom supplies					$	300
Utilities	$	1,210	$	70
Campus rent	$	4,900
Insurance	$	2,000
Administrative expenses	$	3,800	$	43	$	4

  

For example, administrative expenses should be $3,800 per month plus $43 per course plus $4 per student. The company’s sales should average $870 per student.

  

The actual operating results for September appear below:

  

		Actual
Revenue	$	52,780
Instructor wages	$	11,040
Classroom supplies	$	19,050
Utilities	$	1,900
Campus rent	$	4,900
Insurance	$	2,140
Administrative expenses	$	3,654

  

Required:
1.	The Gourmand Cooking School expects to run four courses with a total of 64 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 62 students in September. Complete the company’s flexible budget for this level of activity.

      

3.	Complete the 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.)

     

rev: 08_05_2014_QC_51911, 08_28_2014_QC_51911

Answer 1

1)

Planning Budget (4 classes; 60 students)
	Forumla	Amount
Revenue	870*64	$55,680
Instructor wages	2940*4	$11,760
Classroom supplies	300*64	$19,200
Utilities	1210*(70*4)	$1,490
Campus rent	4900	$4,900
Insurance	2000	$2,000
Administrative expenses	3800+(43*4)+(4*64)	$4,228
Total Expense		$43,578
Net Operating Income		$12,102

2)

Flexible Budget (4 classes; 62 students)
	Forumla	Amount
Revenue	870*62	$53,940
Instructor wages	2940*4	$11,760
Classroom	300*62	$18,600
Utilities	1210*(70*4)	$1,490
Campus rent	4900	$4,900
Insurance	2000	$2,000
Administrative expenses	3800+(43*4)+(4*62)	$4,220
Total Expense		$42,970
Net Operating Income		$10,970

3)

	Actual Results	Flexible Budget	Revenue & Spending Variance			Flexible Budget	Planning Budget	Activity Variance
Revenue	$52,780	$53,940	($1,160)	U		$53,940	$55,680	($1,740)	U
Expenses:
Instructor wages	$11,040	$11,760	($720)	F		$11,760	$11,760	$0
Classroom	$19,050	$18,600	$450	U		$18,600	$19,200	($600)	F
Utilities	$1,900	$1,490	$410	U		$1,490	$1,490	$0
Campus rent	$4,900	$4,900	$0			$4,900	$4,900	$0
Insurance	$2,140	$2,000	$140	U		$2,000	$2,000	$0
Administratration	$3,654	$4,220	($566)	F		$4,220	$4,228	($8)	F
Total expense	$42,684	$42,970	($286)	F		$42,970	$43,578	($608)	F
Net operating income	$10,096	$10,970	($874)	U		$10,970	$12,102	($1,132)	U

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