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.

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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