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 Cost per per Month Course $ 2,950 Cost per Student $ 270 $ 50 Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses $ 1,230 $ 5,000 $ 2,100 $ 3,600 $ 44 $ 5 For example, administrative expenses should be $3,600 per month plus $44 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 65 students, however, it actually ran four courses with a total of only 57 students. The actual operating results for September appear below: Revenue Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses Actual $ 53,000 $ 11,080 $ 17,400 $ 1,840 $ 5,000 $ 2, 240 $ 3,527 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

Number of courses = 4

students = 65

Budgeted course	4
Students	65
Revenue [$860*65]	$55,900
Expenses
Instructor wages [$2950*4]	$11,800
Classroom supplies [$270*65]	$17,550
utilities [$1,230+$50*4]	$1,430
Campus rent [$5000]	$5,000
Insurance[$2100]	$2,100
Administrative expense [3600+$44*4 +$5*65]	$4,101
Total expense	$41,981
Net operating income[$55,900-$41,981]	$13,919

2) Flexible budget

it takes budgeted cost for actual activity

Number of students = 57

courses = 4

Budgeted course	4
Students	57
Revenue [$860*57]	$49,020
Expenses
Instructor wages [$2950*4]	$11,800
Classroom supplies [$270*57]	$15,390
utilities [$1,230+$50*4]	$1,430
Campus rent [$5000]	$5,000
Insurance[$2100]	$2,100
Administrative expense [3600+$44*4 +$5*57]	$4,061
Total expense	$39,781
Net operating income[$49,020-$39,781]	$9,239

3) revenue and spending variance is difference between actual results and flexible budget

	Actual results	Revenue and spending variance	Flexible budget
Budgeted course	4		4
Students	57		57
Revenue [$860*57]	$53,000	$3,980 F[$53,000-$49,020]	$49,020
Expenses
Instructor wages [$2950*4]	$11,080	$720 F [$11080-$11,800]	$11,800
Classroom supplies [$270*57]	$17,400	$2,010 U [$17,400-$15,390]	$15,390
utilities [$1,230+$50*4]	$1,840	$410 U [$1,840-$1,430]	$1,430
Campus rent [$5000]	$5,000	$0	$5,000
Insurance[$2100]	$2,240	$140 U [$2,240-2,100]	$2,100
Administrative expense [3600+$44*4 +$5*57]	$3,527	$534 F [$3,527-4,061]	$4,061
Total expense	$41,087	$1,306 U [$41,087-39,781]	$39,781
Net operating income[$49,020-$39,781]	$11,913	$2,674 F [11,913-9,239]	$9,239

If the actual cost>Flexible costs, variance = unfavorable

If the actual cost< Flexible costs variance= favorable

If the actual revenue > Flexible revenue, variance= favorable

If the actual revenue< flexible revenue , variance = unfavorable

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