Question

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that 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 61 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 $ 270 Utilities $ 1,200 $ 50 Campus rent $ 4,700 Insurance $ 2,400 Administrative expenses $ 3,800 $ 44 $ 3 For example, administrative expenses should be $3,800 per month plus $44 per course plus $3 per student. The company’s sales should average $900 per student. The actual operating results for September appear below: Actual Revenue $ 52,000 Instructor wages $ 11,040 Classroom supplies $ 16,320 Utilities $ 1,810 Campus rent $ 4,700 Insurance $ 2,540 Administrative expenses $ 3,585 Required: 1. The Gourmand Cooking School expects to run four courses with a total of 61 students in September. Complete the company’s planning budget for this level of activity. 2. The school actually ran four courses with a total of 51 students in September. Complete the company’s flexible budget for this level of activity. 3. Calculate the revenue and spending 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

1
	Planning Budget
	For the month ended September 30
Revenue	54900	=61*900
Expenses:
Instructor wages	11760	=4*2940
Classroom supplies	16470	=61*270
Utilities	1400	=1200+(4*50)
Campus rent	4700
Insurance	2400
Administrative expenses	4159	=3800+(4*44)+(61*3)
Total expense	40889
Net operating income	14011
2
	Flexible Budget
	For the month ended September 30
Revenue	45900	=51*900
Expenses:
Instructor wages	11760	=4*2940
Classroom supplies	13770	=51*270
Utilities	1400	=1200+(4*50)
Campus rent	4700
Insurance	2400
Administrative expenses	4129	=3800+(4*44)+(51*3)
Total expense	38159
Net operating income	7741
3
	Revenue and spending variance
Revenue	6100	F
Expenses:
Instructor wages	720	F
Classroom supplies	2550	U
Utilities	410	U
Campus rent	0	None
Insurance	140	U
Administrative expenses	544	F
Total expense	1836	U
Net operating income	4264	F
Workings for 3:
	Actual results	Revenue and spending variance		Flexible budget
Courses	4			4
Students	51			51
Revenue	52000	6100	F	45900
Expenses:
Instructor wages	11040	720	F	11760
Classroom supplies	16320	2550	U	13770
Utilities	1810	410	U	1400
Campus rent	4700	0	None	4700
Insurance	2540	140	U	2400
Administrative expenses	3585	544	F	4129
Total expense	39995	1836	U	38159
Net operating income	12005	4264	F	7741