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 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 $2,910
Classroom supplies $310
Utilities $1,250 $55
Campus rent $4,900
Insurance $2,100
Administrative expenses$3,600 $42 $3
For example, administrative expenses should be $3,600 per month plus $42 per course plus $3 per student. The company's sales should average $870 per student.
The actual operating results for September appear below:
Actual
Revenue $52,780
Instructor wages $10,920
Classroom supplies $19,690
Utilities $1,880
Campus rent $4,900
Insurance $2,240
Administrative expenses $3,386
Required:
1. The Gourmand Cooking School expects to run four courses with a total of 64 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 56 students in September. Complete the company?s flexible budget for this level of activity.
3. Complete the 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.)

The Gourmand Cooking School

1. Planning Budget for 4 courses and 64 students:

                          Fixed Cost      Cost            Cost          Total

                         per month    per Course per Student

Instructor wages                 $2,910  x 4                          $11,640

Classroom supplies                               $310  x 64         19,840

Utilities             $1,250          $55 x 4                                1,470

Campus rent   $4,900                                                     4,900

Insurance         $2,100                                                     2,100

Administrative

expenses      $3,600        $42 x 4        $3 x 64           3,960

Total expenses                                                           $43,910

Sales Revenue                                   $870 x 64       $55,680

Operating profit                                                           $11,770  

2. Flexible Budget for 4 courses and 56 students:

                  Fixed Cost        Cost                 Cost                Total

                  per month    per Course     per Student

Instructor wages           $2,910  x 4                                $11,640

Classroom supplies                               $310  x 56         17,360

Utilities           $1,250          $55 x 4                                   1,470

Campus rent $4,900                                                        4,900

Insurance       $2,100                                                         2,100

Administrative

expenses     $3,600        $42 x 4          $3 x 56            3,936

Total expenses                                                             $41,406

Sales Revenue                                     $870 x 56       $48,720

Operating profit                                                              $7,314

3. Flexible Budget Performance Report for September:

                                 Actual        Flexible Budget     Variance

                       Cost    Revenue   Cost     Revenue

Revenue                    $52,780                  $48,720  $4,060 F

Instructor

wages        $10,920                   $11,640                      720  F

Classroom

supplies     19,690                      17,360                   2,330  U

Utilities          1,880                        1,880                      0      None

Campus rent 4,900                     4,900                      0      None

Insurance     2,240                      2,240                      0      None

Administrative

expenses    3,386                      3,386                      0      None

Total

expenses $43,016  43,016   $41,406     41,406    1,610  U

Operating income  $9,764                       $7,314  2,450  F

Explanation:

a) Data:

1. Cost Formulas:

                      Fixed Cost        Cost                 Cost             Total

                      per month   per Course     per Student

Instructor wages                    $2,910

Classroom supplies                                      $310

Utilities       $1,250          $55

Campus rent $4,900

Insurance   $2,100

Administrative

expenses   $3,600        $42                  $3

Sales Revenue                                         $870

2. Actual operating results for September:

Revenue                                           $52,780

Instructor wages               $10,920

Classroom supplies            19,690

Utilities                                   1,880

Campus rent                        4,900

Insurance                             2,240

Administrative expenses    3,386

Total expenses                $43,016     43,016

Operating income                             $9,764

3. Budget planning is an important aspect of managing The Gourmand Cooking School.  It helps to make some educated forecasts about its future activities, performance, and position.  With it, actual performances and positions can be compared and across different units of the organization.  Budget planning and its performance reporting aid management in controlling the organization towards achieving its goals.  It also creates motivation, propelling the organization toward a better future.

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