Working with More Than One Cost Driver [L09-4, L09-5] The Gourmand Cooking Schoo

Question

Working with More Than One Cost Driver [L09-4, L09-5] 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 62 students enrolled in those two courses. Data concerning the company's cost formulas appear below: For example, administrative expenses should be $3,700 per month plus $46 per course plus $7 per student. The company's sales should average $870 per student. The actual operating results for September appear below: Required: The Gourmand Cooking School expects to run four courses with a total of 62 students in September. Complete the company's planning budget for this level of activity. The school actually ran four courses with a total of 60 students in September. Complete the company's flexible budget for this level of activity. 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.)

Explanation / Answer

Cost Formula Planned Budget for 62 students and 4 courses Flexible Budget for 60 students and 4 courses Actual result for 57 students and 4 courses Revenue /Spending Variance (Flexible Budget - Actual) Favourable/Unfaourable Activity Varaiance(Planned budget -Flexible Budget) Favourable/Unfaourable $ $ $ Revenue $870 per student 53940 52800 51040 1760 U 1140 U Expenses: Isntructors wages $2970C 11880 11880 11160 720 F 0 N Classroom supplies $280S 17360 16800 17210 -410 U 560 F Utilities $1220 + $80C 1540 1540 1950 -410 U 0 N Campus rent $5100 5100 5100 5100 N 0 N Insurance $2100 2100 2100 2440 -340 U 0 N Administrative Expenses $3700+$46C+$7S 4318 4184 3744 440 F 134 F Total (B) 42298 41604 41604 0 U 694 F Net Operating Income (A - B) 11642 11196 9436 1760 U 446 U Where C= number of courses S = number of students

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