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: Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses Fixed Cost per Cost per cost per Month Course Student $ 2,930 $ 280 $1,220 $ 50 $4,800 $2,100 $3,900 $ 40 $ 5 For example, administrative expenses should be $3,900 per month plus $40 per course plus $5 per student. The company's sales should average $860 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 62 students. The actual operating results for September appear below: Revenue Instructor wages classroom supplies Utilities Campus rent Insurance Administrative expenses Actual $ 52,140 $ 11,000 $ 17,770 $ 1,830 $ 4,800 $ 2,240 $ 3,806

Answer 1

Ans. 1	GOURMAND COOKING SCHOOL
	Planning Budget
	For the Month Ended September 30
	Courses	4
	Students	64
	Revenue	$55,040
	Less: Expenses:
	Instructor wages	$11,720
	Classroom supplies	$17,920
	Utilities	$1,420
	Campus rent	$4,800
	Insurance	$2,100
	Administrative expenses	$4,380
	Total expenses	$42,340
	Net operating income	$12,700
Ans. 2	GOURMAND COOKING SCHOOL
	Flexible Budget
	For the Month Ended September 30
	Courses	4
	Students	62
	Revenue	$53,320
	Less: Expenses:
	Instructor wages	$11,720
	Classroom supplies	$17,360
	Utilities	$1,420
	Campus rent	$4,800
	Insurance	$2,100
	Administrative expenses	$4,370
	Total expenses	$41,770
	Net operating income	$11,550
	*Working Notes :
	*Calculations for Flexible budget & Planning budget:
		Planning budget	Flexible budget
	Courses	4	4
	Students	64	62
	Revenue	64 * $860	62 * $860
	Less: Expenses:
	Instructor wages	$2,930 * 4	$2,930 * 4
	Classroom supplies	64 * $280	62 * $280
	Utilities	$1,220 + ($50 * 4)	$1,220 + ($50 * 4)
	Campus rent	$4,800	$4,800
	Insurance	$2,100	$2,100
	Administrative expenses	$3,900 + ($40*4) + ($5*64)	$3,900 + ($40*4) + ($5*62)
Ans. 3	GOURMAND COOKING SCHOOL
	Revenue and Spending Variances
	For the Month Ended September 30
		Actual Results	Revenue & Spending variance		Flexible budget
	Courses	4			4
	Students	62			62
	Revenue	$52,140	$1,180	U	$53,320
	Less: Expenses:
	Instructor wages	$11,000	$720	F	$11,720
	Classroom supplies	$17,770	$410	U	$17,360
	Utilities	$1,830	$410	U	$1,420
	Campus rent	$4,800	$0	none	$4,800
	Insurance	$2,240	$140	U	$2,100
	Administrative expenses	$3,806	$564	F	$4,370
	Total expenses	$41,446	$324	F	$41,770
	Net operating income	$10,694	$856	U	$11,550
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results =   Favorable.