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: points Fixed Cost Cost per per Month Course $ 2,930 cost per Student $ 280 eBook Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses $ 90 $ 1,220 $ 5,100 $ 2,200 $ 3,900 $ 44 $ 5 Print For example, administrative expenses should be $3,900 per month plus $44 per course plus $5 per student. The company's sales should average $870 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: Revenue Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses Actual $ 52,789 $ 11,000 $ 17,770 $ 1,990 $ 5,100 $ 2,340 $ 3,822 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

Ans.	GOURMAND COOKING SCHOOL
	Flexible Budget Performance Report
	For the Month Ended September 30
		Actual Results	Revenue & Spending variance		Flexible budget	Volume variance		Planning Budget
	Courses	4			4			4
	Students	58			58			64
	Revenue	$52,780	$2,320	F	$50,460	$5,220	U	$55,680
	Less: Expenses:
	Instructor wages	$11,000	$720	F	$11,720	$0	none	$11,720
	Classroom supplies	$17,770	$1,530	U	$16,240	$1,680	F	$17,920
	Utilities	$1,990	$410	U	$1,580	$0	none	$1,580
	Campus rent	$5,100	$0	none	$5,100	$0	none	$5,100
	Insurance	$2,340	$140	U	$2,200	$0	none	$2,200
	Administrative expenses	$3,822	$544	F	$4,366	$30	F	$4,396
	Total expenses	$42,022	$816	U	$41,206	$1,710	F	$42,916
	Net operating income	$10,758	$1,504	F	$9,254	$3,510	U	$12,764
	*Calculations for Flexible budget & Planning budget:
		Flexible budget	Planning budget
	Courses	4	4
	Students	58	64
	Revenue	58 * $870	64 * $870
	Less: Expenses:
	Instructor wages	$2,930 * 4	$2,930 * 4
	Classroom supplies	58 * $280	64 * $280
	Utilities	$1,220 + ($90 * 4)	$1,220 + ($90 * 4)
	Campus rent	$5,100	$5,100
	Insurance	$2,200	$2,200
	Administrative expenses	$3,900 + ($44*4) + ($5*58)	$3,900 + ($44*4) + ($5*64)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.