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 62 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			$	2,900
Classroom supplies					$	280
Utilities	$	1,230	$	80
Campus rent	$	4,700
Insurance	$	2,100
Administrative expenses	$	3,800	$	45	$	6

For example, administrative expenses should be $3,800 per month plus $45 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 56 students. The actual operating results for September appear below:

	Actual
Revenue	$	50,420
Instructor wages	$	10,880
Classroom supplies	$	17,210
Utilities	$	1,960
Campus rent	$	4,700
Insurance	$	2,240
Administrative expenses	$	3,778

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

Required 1 :
Gourmand Cooking School
Planning budget
For the month ended September 30
Revenue [ 860 * 62 ]	53320
Expenses :
Instructor wages [ 2900 * 4 ]	11600
Classroom supplies [ 280 * 62 ]	17360
Utilities [ 1230 + ( 80 * 4 ) ]	1550
Campus rent	4700
Insurance	2100
Administrative expenses [ 3800 + ( 45 * 4 ) + ( 6 * 62 ) ]	4352
Total expenses	41662
Net operating income	11658

Required 2 :
Gourmand Cooking School
Flexible budget
For the month ended September 30
Revenue [ 860 * 56 ]	48160
Expenses :
Instructor wages [ 2900 * 4 ]	11600
Classroom supplies [ 280 * 56 ]	15680
Utilities [ 1230 + ( 80 * 4 ) ]	1550
Campus rent	4700
Insurance	2100
Administrative expenses [ 3800 + ( 45 * 4 ) + ( 6 * 56 ) ]	4316
Total expenses	39946
Net operating income	8214

Required 3 :
Gourmand Cooking School
Flexible budget
For the month ended September 30
	Flexible budget	Actual results	Revenue and spending variances
Revenue	48160	50420	2260	F
Expenses :
Instructor wages	11600	10880	720	F
Classroom supplies	15680	17210	1530	U
Utilities	1550	1960	410	U
Campus rent	4700	4700	0	None
Insurance	2100	2240	140	U
Administrative expenses	4316	3778	538	F
Total expenses	39946	40768	822	U
Net operating income	8214	9652	1438	F