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				$	0.10
Wages and salaries	$	4,700		$	0.30
Depreciation	$	8,200
Rent	$	2,000
Administrative expenses	$	1,500		$	0.02

For example, electricity costs are $1,400 per month plus $0.05 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.00 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,300
Revenue	$	51,300
Expenses:
Cleaning supplies		6,240
Electricity		1,780
Maintenance		1,060
Wages and salaries		7,520
Depreciation		8,200
Rent		2,200
Administrative expenses		1,564
Total expense		28,564
Net operating income	$	22,736

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

	Actual	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Cars washed	8300			8300			8200
Revenue	51300	1500	F	49800	600	F	49200
Expenses:
Cleaning supplies	6240	430	U	5810	70	U	5740
Electricity	1780	35	F	1815	5	U	1810
Maintenance	1060	230	U	830	10	U	820
Wages and salaries	7520	330	U	7190	30	U	7160
Depreciation	8200	0	None	8200	0	None	8200
Rent	2200	200	U	2000	0	None	2000
Administrative expenses	1564	102	F	1666	2	U	1664
Total expenses	28564	1053	U	27511	117	U	27394
Net operating income	22736	447	F	22289	483	F	21806