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 64 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			$	2,930
Classroom supplies					$	290
Utilities	$	1,210	$	75
Campus rent	$	5,100
Insurance	$	2,100
Administrative expenses	$	3,900	$	43	$	4

For example, administrative expenses should be $3,900 per month plus $43 per course plus $4 per student. The company’s sales should average $850 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 58 students. The actual operating results for September appear below:

	Actual
Revenue	$	51,500
Instructor wages	$	11,000
Classroom supplies	$	18,410
Utilities	$	1,920
Campus rent	$	5,100
Insurance	$	2,240
Administrative expenses	$	3,754

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 results	Revenue and spending variance		Flexible budget	Activity variances		Planning Budget
Courses	4			4			4
Students	58			58			64
Revenue	51500	2200	F	49300	5100	U	54400
Expenses:
Instructor wages	11000	720	F	11720	0	None	11720
Classroom supplies	18410	1590	U	16820	1740	F	18560
Utilities	1920	410	U	1510	0	None	1510
Campus rent	5100	0	None	5100	0	None	5100
Insurance	2240	140	U	2100	0	None	2100
Administrative expenses	3754	550	F	4304	24	F	4328
Total expense	42424	870	U	41554	1764	F	43318
Net operating income	9076	1330	F	7746	3336	U	11082