In: Accounting
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 62 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 | $ | 2,970 | |||||
Classroom supplies | $ | 290 | |||||
Utilities | $ | 1,200 | $ | 75 | |||
Campus rent | $ | 4,800 | |||||
Insurance | $ | 2,400 | |||||
Administrative expenses | $ | 3,700 | $ | 40 | $ | 5 | |
For example, administrative expenses should be $3,700 per month plus $40 per course plus $5 per student. The company’s sales should average $880 per student.
The company planned to run four courses with a total of 62 students; however, it actually ran four courses with a total of only 52 students. The actual operating results for September appear below:
Actual | ||
Revenue | $ | 51,660 |
Instructor wages | $ | 11,160 |
Classroom supplies | $ | 17,830 |
Utilities | $ | 1,910 |
Campus rent | $ | 4,800 |
Insurance | $ | 2,540 |
Administrative expenses | $ | 3,596 |
Required:
1. Prepare the company’s planning budget for September.
2. Prepare the company’s flexible budget for September.
3. Calculate the revenue and spending variances for September.
Planning Budget | |
Particulars | Planning Budget |
Courses | 4 |
Student | 62 |
Revenue | $54,560.00 |
Expenses: | |
Instructor Wages | $11,880.00 |
Classroom Supplies | $17,980.00 |
Utilities | $1,500.00 |
Campus Rent | $4,800.00 |
Insurance | $2,400.00 |
Administrative Expenses | $4,170.00 |
Tototal Expense | $42,730.00 |
Net Operating Income | $11,830.00 |
Flexible Budget | |
Particulars | Flexible Budget |
Courses | 4 |
Student | 52 |
Revenue | $45,760.00 |
Expenses: | |
Instructor Wages | $11,880.00 |
Classroom Supplies | $15,080.00 |
Utilities | $1,500.00 |
Campus Rent | $4,800.00 |
Insurance | $2,400.00 |
Administrative Expenses | $4,120.00 |
Tototal Expense | $39,780.00 |
Net Operating Income | $5,980.00 |
Particulars | Actual | Revenue and spending variances | Flexible Budget | |
Courses | 4 | 4 | ||
Student | 52 | 52 | ||
Revenue | $51,660.00 | $5,900.00 | F | $45,760.00 |
Expenses: | ||||
Instructor Wages | $11,160.00 | $720.00 | F | $11,880.00 |
Classroom Supplies | $17,830.00 | $2,750.00 | U | $15,080.00 |
Utilities | $1,910.00 | $410.00 | U | $1,500.00 |
Campus Rent | $4,800.00 | $0.00 | None | $4,800.00 |
Insurance | $2,540.00 | $140.00 | U | $2,400.00 |
Administrative Expenses | $3,596.00 | $524.00 | F | $4,120.00 |
Tototal Expense | $41,836.00 | $2,056.00 | U | $39,780.00 |
Net Operating Income | $9,824.00 | $3,844.00 | F | $5,980.00 |