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:

	Fixed Cost per Month		Cost per Course		Cost per Student
Instructor wages			$	2,920
Classroom supplies					$	300
Utilities	$	1,230	$	65
Campus rent	$	4,500
Insurance	$	2,200
Administrative expenses	$	3,800	$	41	$	3

For example, administrative expenses should be $3,800 per month plus $41 per course plus $3 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 60 students. The actual operating results for September appear below:

	Actual
Revenue	$	52,780
Instructor wages	$	10,960
Classroom supplies	$	19,050
Utilities	$	1,900
Campus rent	$	4,500
Insurance	$	2,340
Administrative expenses	$	3,582

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

Gourmand Cooking School
Flexible Budget Report
For the month ended September 30
	Workings:	Actual results	Revenue and Spending Variances		Flexible Budget	Activity Variance		Planning Budget
Courses	x	4			4			4
Students	y	60			60			64
Revenue	($870* y)	$      52,780	$                   580	F	$      52,200	$         3,480	U	$    55,680
Expenses:
Instructor wages	($2920* x)	$      10,960	$                   720	F	$      11,680	$                -	None	$    11,680
Classroom supplies	($300* y)	$      19,050	$               1,050	U	$      18,000	$         1,200	F	$    19,200
Utilities	($1230 + $65 * x)	$         1,900	$                   410	U	$         1,490	$                -	None	$      1,490
Campus rent	$                                     4,500	$         4,500	$                      -	None	$         4,500	$                -	None	$      4,500
Insurance	$                                     2,200	$         2,340	$                   140	U	$         2,200	$                -	None	$      2,200
Administrative expenses	[$3800 + ($41 * x) + ($3 * y)]	$         3,582	$                   562	F	$         4,144	$               12	F	$      4,156
Total expenses		$      42,332	$                   318	U	$      42,014	$         1,212	F	$    43,226
Net operating income		$      10,448	$                   262	F	$      10,186	$         2,268	U	$    12,454