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 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			$	2,900
Classroom supplies					$	280
Utilities	$	1,210	$	60
Campus rent	$	4,700
Insurance	$	2,400
Administrative expenses	$	3,900	$	46	$	6

For example, administrative expenses should be $3,900 per month plus $46 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 61 students. The actual operating results for September appear below:

	Actual
Revenue	$	54,300
Instructor wages	$	10,880
Classroom supplies	$	18,050
Utilities	$	1,860
Campus rent	$	4,700
Insurance	$	2,540
Administrative expenses	$	3,900

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) Planning budget :

Revenue	57200
Instructor wages	11600
Classroom supplies	18200
Utilities	1450
Campus rent	4700
Insurance	2400
Administrative expenses	4474
Total expense	42824
Net operating income	14376

Flexible budget :

Revenue	53680
Instructor wages	11600
Classroom supplies	17080
Utilities	1450
Campus rent	4700
Insurance	2400
Administrative expenses	4450
Total expense	41680
Net operating income	12000

3. Calculate the revenue and spending variances for September.

Revenue	620 F
Instructor wages	720 F
Classroom supplies	970 U
Utilities	410 U
Campus rent	0 None
Insurance	140 U
Administrative expense	550 F
Total expense	250 U
Net operating income	370 F