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			$	2,900
Classroom supplies					$	290
Utilities	$	1,210	$	85
Campus rent	$	4,700
Insurance	$	2,200
Administrative expenses	$	4,000	$	45	$	4

For example, administrative expenses should be $4,000 per month plus $45 per course plus $4 per student. The company’s sales should average $850 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	$	51,500
Instructor wages	$	10,880
Classroom supplies	$	18,410
Utilities	$	1,960
Campus rent	$	4,700
Insurance	$	2,340
Administrative expenses	$	3,862

Required:

Prepare a 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.)

Answer 1

	Actual results	Revenue and spending variance		Flexible budget	Activity variances		Planning Budget
Courses	4			4			4
Students	60			60			64
Revenue	51500	500	F	51000	3400	U	54400
Expenses:
Instructor wages	10880	720	F	11600	0	None	11600
Classroom supplies	18410	1010	U	17400	1160	F	18560
Utilities	1960	410	U	1550	0	None	1550
Campus rent	4700	0	None	4700	0	None	4700
Insurance	2340	140	U	2200	0	None	2200
Administrative expenses	3862	558	F	4420	16	F	4436
Total expense	42152	282	U	41870	1176	F	43046
Net operating income	9348	218	F	9130	2224	U	11354