Question

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides estimates 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 should be $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

Actual car washed	8,800
Revenue	$43,120
Expenses:
... Cleaning supplies	$7,040
... Electricity	$2,520
... Maintenance	$1,760
... Wages and salaries	$7,640
... Depreciation	$6,000
... Rent	$8,000
... Administrative expenses	$4,880
Total expenses	$37,840
Net operating income	$5,280

Working Notes:

Revenue = $8,800 * $4.90

= $43,120

Cleaning supplies = $0.80 * 8,800

= $7,040

Electricity = $1,200 + ($0.15 * 8,800)

= $1,200 + $1,320

= $2,520

Maintenance = $0.20 * 8,800

= $1,760

Wages and salaries = $5,000 + ($0.30 * 8,800)

= $5,000 + $2,640

= $7,640

Administrative expenses = $4,000 + ($0.10 * 8,800)

= $4,000 + $880

= $4,880