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	$	1,400		$	0.05
Maintenance				$	0.25
Wages and salaries	$	4,200		$	0.30
Depreciation	$	8,400
Rent	$	1,900
Administrative expenses	$	1,600		$	0.02

For example, electricity costs are $1,400 per month plus $0.05 per car washed. The company actually washed 8,300 cars in August and collected an average of $6.80 per car washed.

Required:

Prepare the company’s flexible budget for August.

Answer 1

FLEXIBLE BUDGET:

Lavage Rapide
Flexible budget
For the month of August
Number of cars washed		8,300
Revenues (8,300 x $6.80)		$56,440
Expenses:
Cleaning supplies	$    5,810
Electricity	$    1,815
Maintenance	$    2,075
Wages and salaries	$    6,690
Depreciation	$    8,400
Rent	$    1,900
Administrative expenses	$    1,766
Total expenses		$ 28,456
Net income		$27,984

Calculations:

	(i)	(ii)	(i)+(ii)
	Fixed Cost per month	Variable Cost (Actual cars washed x Cost per car washed)	Total
Cleaning supplies		(8,300 x $0.70)	$        5,810
Electricity	$        1,400	(8,300 x $0.05)	$        1,815
Maintenance		(8,300 x $0.25)	$        2,075
Wages and salaries	$        4,200	(8,300 x $0.30)	$        6,690
Depreciation	$        8,400		$        8,400
Rent	$        1,900		$        1,900
Administrative expenses	$        1,600	(8,300 x $0.02)	$        1,766