Question

Exercise 9-18 Working with More Than One Cost Driver [LO9-2, LO9-3, LO9-4, LO9-5] 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 62 students enrolled in those two courses. Data concerning the company's cost formulas appear below: Fixed Cost per Cost per Cost per Month Coursc Student $2,950 Instructor wages Classroon supplies utilities Campus rent $280 $1,230 55 $4,900 $2,200 $4,000 44 Administrative expenses For example, administrative expenses should be $4,000 per month plus $44 per course plus $6 per student The company's sales should average $860 per student. The company planned to run four courses with a total of 62 students; however, it actually ran four courses with a total of only 52 students. The actual operating results for September appear below Actual $50,420 $11,080 $17,210 $ 1,860 $ 4,900 $ 2,340 $ 3,974 Instructor wages Classroom supplies utilities Campus rent Administrative expenses 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.) Gourmand Cooking School Flexible Budget Performance Report For the Month Ended September 30 Actual Results Flexible Budget Planning Budget Courses Students 52 Revenue $ 50,420 Expenses: Instructor wages Classroom supplies Utilities Campus rent 11,080 17,210 1,860 4,900 2,340 3,974 41,364 9,056 Administrative expenses Total expense Net operating income Frank Weston, supervisor of the Freemont Corporation's Machining Department, was visibly upset after being reprimanded for his department's poor performance over the prior month. The department's cost control report is given below: Cost Control Report For the Month Ended June 30 Actual Results 42,000 Planning Budget Variances 40,000 Direct labor wages Supplies Maintenance utilities Supervision Depreciation Total 96,100 30,800 26,500 24,200 60,000 105,000 92,800 27,600 23,700 22,500 60,000 105,000 3,300 U 3,200 U 2,800 U 1,700 U $342,600 $331 600 11,000U I just can't understand all of these unfavorable variances," Weston complained to the supervisor of another department. "When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable." Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $19,700; the fixed component of the budgeted utilities cost is $14,700. Required: 2. Complete the performance report that will help Mr. Weston's superiors assess how well costs were controlled in the machining department. (Round your intermediate calculations to 2 decimal places. 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.) Flexible Budget Performance Report For the Month Ended June 30 Planning Flexible Bud Actual 42,000 40,000 $ 92,800 27,600 23,700 22,500 60,000 105,000 $ 331,600 Direct labor wages Supplies $ 96,100 30,800 26,500 24,200 60,000 105,000 $ 342,600 Utilities Total

Answer 1

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Gourmand cooking school
Flexible Budget performance report
For the month ended September 31
	Actual result	Spending variance		Flexible budget	Activity (Volume) variance		Planning (Static) budget
Courses	4			4			2
Students	52			52			62
Revenue	50,420	5,700	F	44,720	8,600	U	53,320
Expense
Instructor wages	11,080	720	F	11,800	5,900	U	5,900
Classroom supplies	17,210	2,650	U	14,560	2,800	F	17,360
Utilities	1,860	410	U	1,450	110	U	1,340
Campus rent	4,900	-	None	4,900	-	None	4,900
Insurance	2,340	140	U	2,200	-	None	2,200
Administrative expense	3,974	514	F	4,488	28	U	4,460
Total expense	41,364	1,966	U	39,398	3,238	U	36,160
Net income	9,056	3,734	F	5,322	11,838	U	17,160

U means Unfavorable Variance

F means Favorable Variance

None means No variance

Hint:

Increase in revenue, Contribution margin, net income, operating income is Favorable event.

Decrease in revenue, Contribution margin, net income, operating income is Unfavorable event.

Increase in expense or cost is Unfavorable event.

Decrease in expense or cost is Favorable event.

How to calculate Increase?

For Spending variance, Increase (decrease) =Actual result Less Flexible budget

For Activity (Volume) variance, Increase (decrease) = Flexible budget Less Planning (Static) budget

Planning (Static) budget
Courses	2
Students	62
Revenue (62*860)	53,320
Expense
Instructor wages (2*2950)	5,900
Classroom supplies (62*280)	17,360
Utilities (1230+(2*55))	1,340
Campus rent	4,900
Insurance	2,200
Administrative expense (4000+(2*44)+(6*62))	4,460
Total expense	36,160
Net income	17,160
Flexible budget
Courses	4
Students	52
Revenue (52*860)	44,720
Expense
Instructor wages (4*2950)	11,800
Classroom supplies (52*280)	14,560
Utilities (1230+(4*55))	1,450
Campus rent	4,900
Insurance	2,200
Administrative expense (4000+(4*44)+(6*52))	4,488
Total expense	39,398
Net income	5,322