Question

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 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.)

Homework Answers

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
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