rk, Ch 9 6 Hel The its two courses in a month and have a total of 61 students en

Question

rk, Ch 9 6 Hel The its two courses in a month and have a total of 61 students enrolled in those two courses. Data concerning the company's cost formulas appear below nt has identified two cost drivers it uses in Fi Instructor wages Classroon supplies Utilities Campus rent Insurance s 2,960 260 s 1,210 60 5,000 2,280 $3,600 45 S 4 For example, administrative expenses should be $3.600 per month plus S45 per course plus $4 per student The company's sales should average $900 per student The company planned to run four courses with a total of 61 students: however it actually ran four courses with a total of only 57 students. The actual operating results for September appear below Actual s 52,e00 11,120 s 15,710 S 1,860 s 5,000 $2,340 Classroom supplies Campus rent Insurance Prey 8 of 9 il Ne

Explanation / Answer

Solution:

First of all we need to calculate the Planned Budget. Planned budget is the master budget prepared by estimated activity at the beginning using standard cost.

Gourmand Cooking School

Planning Budget

For the Month Ended September 30

Planned Courses

4

Number of Students

61

Revenue (61 Students x $900)

$54,900

Expenses:

Instructor wages (4 Courses x $2,960)

$11,840

Classroom supplies (61*260)

$15,860

Utilities ($1210 + (4*61))

$1,454

Campus rent

$5,000

Insurance

$2,200

Administrative expenses (3600 + (4*45) + (61*4)

$4,024

Total expense

$40,378

Net Operating Income

$14,522

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

Actual Courses Run

4

Number of Students Actual

57

Revenue (57 Students x $900)

$51,300

Expenses:

Instructor wages (4 Courses x $2,960)

$11,840

Classroom supplies (57*260)

$14,820

Utilities ($1210 + (4*57))

$1,438

Campus rent

$5,000

Insurance

$2,200

Administrative expenses (3600 + (4*45) + (57*4)

$4,008

Total expense

$39,306

Net Operating Income

$11,994

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

57

57

61

Revenue

$52,000

$700

F

$51,300

$3,600

U

$54,900

Expenses:

Instructor wages

$11,120

$720

F

$11,840

$0

none

$11,840

Classroom supplies

$15,710

$890

U

$14,820

$1,040

F

$15,860

Utilities

$1,860

$422

U

$1,438

$16

F

$1,454

Campus rent

$5,000

$0

None

$5,000

$0

None

$5,000

Insurance

$2,340

$140

U

$2,200

$0

None

$2,200

Administrative expenses

$3,450

$558

F

$4,008

$16

F

$4,024

Total expense

$39,480

$174

U

$39,306

$1,072

F

$40,378

Net Operating Income

$12,520

$526

F

$11,994

$2,528

U

$14,522

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.

Gourmand Cooking School

Planning Budget

For the Month Ended September 30

Planned Courses

4

Number of Students

61

Revenue (61 Students x $900)

$54,900

Expenses:

Instructor wages (4 Courses x $2,960)

$11,840

Classroom supplies (61*260)

$15,860

Utilities ($1210 + (4*61))

$1,454

Campus rent

$5,000

Insurance

$2,200

Administrative expenses (3600 + (4*45) + (61*4)

$4,024

Total expense

$40,378

Net Operating Income

$14,522

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