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 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			$	2,910
Classroom supplies					$	280
Utilities	$	1,240	$	85
Campus rent	$	4,900
Insurance	$	2,400
Administrative expenses	$	3,600	$	40	$	7

For example, administrative expenses should be $3,600 per month plus $40 per course plus $7 per student. The company’s sales should average $900 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 60 students. The actual operating results for September appear below:

	Actual
Revenue	$	54,700
Instructor wages	$	10,920
Classroom supplies	$	17,770
Utilities	$	1,990
Campus rent	$	4,900
Insurance	$	2,540
Administrative expenses	$	3,634

Required:

Prepare a flexible budget performance report as well as a master (planning) budget 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.)

Answer 1

	Actual results	Revenue and spending variance		Flexible budget	Activity variances		Planning Budget
Courses	4			4			4
Students	60			60			64
Revenue	54700	700	F	54000	3600	U	57600
Expenses:
Instructor wages	10920	720	F	11640	0	None	11640
Classroom supplies	17770	970	U	16800	1120	F	17920
Utilities	1990	410	U	1580	0	None	1580
Campus rent	4900	0	None	4900	0	None	4900
Insurance	2540	140	U	2400	0	None	2400
Administrative expenses	3634	546	F	4180	28	F	4208
Total expense	41754	254	U	41500	1148	F	42648
Net operating income	12946	446	F	12500	2452	U	14952