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 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 $ 300
Utilities $ 1,240 $ 65
Campus rent $ 4,600
Insurance $ 2,300
Administrative expenses $ 3,500 $ 43 $ 4

For example, administrative expenses should be $3,500 per month plus $43 per course plus $4 per student. The company’s sales should average $860 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 $ 50,420
Instructor wages $ 11,160
Classroom supplies $ 18,450
Utilities $ 1,910
Campus rent $ 4,600
Insurance $ 2,440
Administrative expenses $ 3,346

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.

Homework Answers

Answer #1

1.

Gourmand Cooking School
Planning Budget
For the Month Ended September 30
Revenue ($860 x 62) 53320
Expenses:
Instructor wages ($2970 x 4) 11880
Classroom supplies ($300 x 62) 18600
Utilities [$1240 + ($65 x 4)] 1500
Campus rent 4600
Insurance 2300
Administrative expenses [$3500+($43 x 4)+($4 x 62)] 3920
Total expense 42800
Net operating income 10520

2.

Gourmand Cooking School
Flexible Budget
For the Month Ended September 30
Revenue ($860 x 52) 44720
Expenses:
Instructor wages ($2970 x 4) 11880
Classroom supplies ($300 x 52) 15600
Utilities [$1240 + ($65 x 4)] 1500
Campus rent 4600
Insurance 2300
Administrative expenses [$3500+($43 x 4)+($4 x 52)] 3880
Total expense 39760
Net operating income 4960

3.

Gourmand Cooking School
Flexible Budget Performance Report
For the Month Ended September 30
Actual Results Revenue and Spending Variances Flexible Budget
Revenue 50420 5700 F 44720
Expenses:
Instructor wages 11160 720 F 11880
Classroom supplies 18450 2850 U 15600
Utilities 1910 410 U 1500
Campus rent 4600 0 None 4600
Insurance 2440 140 U 2300
Administrative expenses 3346 534 F 3880
Total expense 41906 2146 U 39760
Net operating income 8514 3554 F 4960
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