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			$	2,980
Classroom supplies					$	290
Utilities	$	1,220	$	55
Campus rent	$	4,800
Insurance	$	2,000
Administrative expenses	$	3,500	$	42	$	7

For example, administrative expenses should be $3,500 per month plus $42 per course plus $7 per student. The company’s sales should average $900 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 63 students. The actual operating results for September appear below:

	Actual
Revenue	$	55,600
Instructor wages	$	11,200
Classroom supplies	$	18,700
Utilities	$	1,850
Campus rent	$	4,800
Insurance	$	2,140
Administrative expenses	$	3,549

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
	For the month ended September 30
Budgeted Courses	4
Budgeted Students	65
Revenue	58500	=65*900
Expenses:
Instructor wages	11920	=4*2980
Classroom supplies	18850	=65*290
Utilities	1440	=1220+(4*55)
Campus rent	4800
Insurance	2000
Administrative expenses	4123	=3500+(4*42)+(65*7)
Total expense	43133
Net operating income	15367
2
	Flexible Budget
	For the month ended September 30
Actual Courses	4
Actual Students	63
Revenue	56700	=63*900
Expenses:
Instructor wages	11920	=4*2980
Classroom supplies	18270	=63*290
Utilities	1440	=1220+(4*55)
Campus rent	4800
Insurance	2000
Administrative expenses	4109	=3500+(4*42)+(63*7)
Total expense	42539
Net operating income	14161
3
	Actual results	Revenue and spending variance		Flexible budget
Courses	4			4
Students	63			63
Revenue	55600	1100	U	56700
Expenses:
Instructor wages	11200	720	F	11920
Classroom supplies	18700	430	U	18270
Utilities	1850	410	U	1440
Campus rent	4800	0	None	4800
Insurance	2140	140	U	2000
Administrative expenses	3549	560	F	4109
Total expense	42239	300	F	42539
Net operating income	13361	800	U	14161