Question

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				$	0.70
Electricity	$	1,000		$	0.08
Maintenance				$	0.30
Wages and salaries	$	4,100		$	0.30
Depreciation	$	8,000
Rent	$	2,000
Administrative expenses	$	1,500		$	0.02

For example, electricity costs are $1,000 per month plus $0.08 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $6.60 per car washed.

Required:

Prepare the company’s planning budget for August.

Answer 1

Lavage Rapide company’s planning budget for August.

Particulars		calculations	Amount
Revenue (A)		8,000cars*$6.6	$52,800
Expenses :	Cost Nature	Fixed cost + variable cost Variable cost =8,000 cars*cost per car
Cleaning supplies	variable	8,000*$0.70	$5,600
Electricity	Mixed	1,000+8,000*0.08	$1,640
Maintenance	variable	8,000*$0.30	$2,400
Wages and salaries	Mixed	4,100+8,000*$0.30	$6,500
Depreciation	Fixed	$8,000	$8,000
Rent	Fixed	$2,000	$2,000
Administrative expenses	Mixed	1,500+8,000*0.02	$1,660
Total expenses (B)			$27,800
Net operating income (A-B)			$25,000