Question

Exercise 9-8 Flexible Budget [LO9-1]

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

	Fixed Cost per Month			Cost per Car Washed
Cleaning supplies				$	0.80
Electricity	$	1,200		$	0.15
Maintenance				$	0.20
Wages and salaries	$	5,000		$	0.30
Depreciation	$	6,000
Rent	$	8,000
Administrative expenses	$	4,000		$	0.10

For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company actually washed 8,800 cars in August and collected an average of $4.90 per car washed.

Required:

Prepare the company’s flexible budget for August.

Answer 1

Answer
Planning Budget (August)
Particulars	Amounts	Amounts
a. Revenue (8800*$4.90)		$ 43,120
Expenses:
Cleaning supplies (8800*0.80)	$7,040
Electricity (8800*0.15) + $1200	$2,520
Maintenance (8800*0.20)	$1,760
Wages and salaries (8800*0.30) + $5000	$7,640
Depreciation	$6,000
Rent	$8,000
Administrative expenses (8800*0.10) + $4000	$4,880
b. Total expenses		$-37,840
c. Net operating income (a-b)		$ 5,280