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 63 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			$	2,940
Classroom supplies					$	300
Utilities	$	1,220	$	65
Campus rent	$	5,000
Insurance	$	2,300
Administrative expenses	$	3,800	$	43	$	7

For example, administrative expenses should be $3,800 per month plus $43 per course plus $7 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 63 students; however, it actually ran four courses with a total of only 57 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,540
Instructor wages	$	11,040
Classroom supplies	$	18,750
Utilities	$	1,890
Campus rent	$	5,000
Insurance	$	2,440
Administrative expenses	$	3,839

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September.

Answer 1

	Actual results	Revenue and spending variance		Flexible budget	Activity variances		Planning Budget
Courses	4			4			4
Students	57			57			63
Revenue	52540	2380	F	50160	5280	U	55440
Expenses:
Instructor wages	11040	720	F	11760	0	None	11760
Classroom supplies	18750	1650	U	17100	1800	F	18900
Utilities	1890	410	U	1480	0	None	1480
Campus rent	5000	0	None	5000	0	None	5000
Insurance	2440	140	U	2300	0	None	2300
Administrative expenses	3839	532	F	4371	42	F	4413
Total expense	42959	948	U	42011	1842	F	43853
Net operating income	9581	1432	F	8149	3438	U	11587