Exercise 9-18 Working with More Than One Cost Driver [LO9-2, LO9-3, LO9-4, LO9-5

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 Cost per Cost per per Month Course Student $ 2,95e Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses $290 $1,220 75 $ 4,700 $ 2,e0e $3,500 423 For example, administrative expenses should be $3,500 per month plus $42 per course plus $3 per student. The company's sales should average $880 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 60 students. The actual operating results for September appear below: Actual $ 51,660 $11,e80 $ 17,83e $ 1,93e $ 4,706e $ 2,148 $ 3,280 Revenue Instructor wages Classroom supplies Utilities Campus rent Insurance Administrative expenses

Explanation / Answer

Solution:

There are two separate question based on the flexible budget performance report.

So, I am solving question 1. Gourmand Cooking School

First of all we need to calculate the Planned Budget using 62 Students and 4 Courses planned

Gourmand Cooking School

Planning Budget

For the Month Ended September 30

Revenue (62 Students x $880)

$54,560

Expenses:

Instructor wages (4 Courses x $2,950)

$11,800

Classroom supplies (62*290)

$17,980

Utilities ($1220 + (4*75))

$1,520

Campus rent

$4,700

Insurance

$2,000

Administrative expenses (3500 + (4*42) + (62*3)

$3,854

Total expense

$41,854

Net Operating Income

$12,706

Flexible Budget is a budget prepared using the actual activity run or performed by the company at standard cost. Hence we will take actual activity performed by the company and standard cost.

Now we need to calculate the Flexible Budget using the actual student ran 60 student and 4 courses

Gourmand Cooking School

Flexible Budget

For the Month Ended September 30

Revenue (60 Students x $880)

$52,800

Expenses:

Instructor wages (4 Courses x $2,950)

$11,800

Classroom supplies (60*290)

$17,400

Utilities ($1220 + (4*75))

$1,520

Campus rent

$4,700

Insurance

$2,000

Administrative expenses (3500 + (4*42) + (60*3)

$3,848

Total expense

$41,268

Net Operating Income

$11,532

Flexible Budget Report

Gourmand Cooking School

Flexible Budget Performance Report

For the Month Ended September 30

Actual Result

Revenue and Spending Variance

Flexible Budget (As per above calculation)

Activity Variance

Planning Budget (As calculated above)

Courses

4

4

4

Students

60

60

62

Revenue

$51,660

$1,140

U

$52,800

$1,760

U

$54,560

Expenses:

Instructor wages

$11,080

$720

F

$11,800

$0

none

$11,800

Classroom supplies

$17,830

$430

U

$17,400

$580

F

$17,980

Utilities

$1,930

$410

U

$1,520

$0

None

$1,520

Campus rent

$4,700

$0

None

$4,700

$0

None

$4,700

Insurance

$2,140

$140

U

$2,000

$0

None

$2,000

Administrative expenses

$3,280

$568

F

$3,848

$6

F

$3,854

Total expense

$40,960

$808

F

$41,768

$586

F

$42,354

Net Operating Income

$10,700

$332

U

$11,032

$1,174

U

$12,206

Note --- Revenue and spending variance is the difference of Actual Result and Flexible Budget.

Activity Variance is the difference of Flexible Budget and Planned Budget.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.

Gourmand Cooking School

Planning Budget

For the Month Ended September 30

Revenue (62 Students x $880)

$54,560

Expenses:

Instructor wages (4 Courses x $2,950)

$11,800

Classroom supplies (62*290)

$17,980

Utilities ($1220 + (4*75))

$1,520

Campus rent

$4,700

Insurance

$2,000

Administrative expenses (3500 + (4*42) + (62*3)

$3,854

Total expense

$41,854

Net Operating Income

$12,706

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