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 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.

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