Question

Exercise 9-18 Working with More Than One Cost Driver [LO9-2, LO9-3, LO9-4, LO9-5]

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 65 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			$	2,980
Classroom supplies					$	270
Utilities	$	1,240	$	55
Campus rent	$	4,800
Insurance	$	2,300
Administrative expenses	$	3,600	$	40	$	6

For example, administrative expenses should be $3,600 per month plus $40 per course plus $6 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 65 students; however, it actually ran four courses with a total of only 55 students. The actual operating results for September appear below:

	Actual
Revenue	$	54,300
Instructor wages	$	11,200
Classroom supplies	$	17,400
Utilities	$	1,870
Campus rent	$	4,800
Insurance	$	2,440
Administrative expenses	$	3,576

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	Revenue & spending		Flexible	Activity variance		planning
		Results	Variance		budget			budget
Courses		4			4			4
Students		55			55			65
Revenues		54,300	5,900	F	48400	8800	U	57200
Expenses
Instructor wages		11,200	720	F	11920	0	N	11920
Classroom supplies		17,400	2,550	U	14850	2700	F	17550
Utilities		1,870	410	U	1460	0	N	1460
Campus rent		4,800	0	N	4,800	0	N	4,800
insurance		2,440	140	U	2,300	0	N	2,300
Administrative expenses		3,576	514	F	4090	60	F	4150
total expense		41,286	1,866	U	39420	2760	F	42180
net operating income		13,014	4,034	F	8980	6040	U	15020