Question

Exercise 9-18 (Algo) 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 63 students enrolled in those two courses. Data concerning the company's cost formulas appear below: Fixed Cost per cost per Cost per Month Course Student $ 2,970 $ 290 $1,200 $ 65 Instructor wages classroom supplies Utilities Campus rent Insurance Administrative expenses $5,100 $2,100 $3,900 $ 44 $ 5 For example, administrative expenses should be $3,900 per month plus $44 per course plus $5 per student. The company's sales should average $900 per student. The company planned to run four courses with a total of 63 students; however, it actually ran four courses with a total of only 61 students. The actual operating results for September appear below: Revenue Instructor wages classroom supplies Utilities Campus rent Insurance Administrative expenses Actual $ 53,800 $ 11,160 $ 18,120 $ 1,870 $ 5,100 $ 2,240 $ 3,817

Answer 1

Ans.	GOURMAND COOKING SCHOOL
	Flexible Budget Performance Report
	For the Month Ended September 30
		Actual Results	Revenue & Spending variance		Flexible budget	Volume variance		Planning Budget
	Courses	4			4			4
	Students	61			61			63
	Revenue	$53,800	$1,100	U	$54,900	$1,800	U	$56,700
	Less: Expenses:
	Instructor wages	$11,160	$720	F	$11,880	$0	none	$11,880
	Classroom supplies	$18,120	$430	U	$17,690	$580	F	$18,270
	Utilities	$1,870	$410	U	$1,460	$0	none	$1,460
	Campus rent	$5,100	$0	none	$5,100	$0	none	$5,100
	Insurance	$2,240	$140	U	$2,100	$0	none	$2,100
	Administrative expenses	$3,817	$564	F	$4,381	$10	F	$4,391
	Total expenses	$42,307	$304	F	$42,611	$590	F	$43,201
	Net operating income	$11,493	$796	U	$12,289	$1,210	U	$13,499
	*Calculations for Flexible budget & Planning budget:
		Flexible budget	Planning budget
	Courses	4	4
	Students	61	63
	Revenue	61 * $900	63 * $900
	Less: Expenses:
	Instructor wages	$2,970 * 4	$2,970 * 4
	Classroom supplies	61 * $290	63 * $290
	Utilities	$1,200 + ($65 * 4)	$1,200 + ($65 * 4)
	Campus rent	$5,100	$5,100
	Insurance	$2,100	$2,100
	Administrative expenses	$3,900 + ($44*4) + ($5*61)	$3,900 + ($44*4) + ($5*63)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.