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				$	0.80
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 expects to wash 9,000 cars in August and to collect an average of $4.90 per car washed.

The actual operating results for August are as follows:

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,800
Revenue	$	43,080
Expenses:
Cleaning supplies		7,560
Electricity		2,670
Maintenance		2,260
Wages and salaries		8,500
Depreciation		6,000
Rent		8,000
Administrative expenses		4,950
Total expense		39,940
Net operating income	$	3,140

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August.

Answer 1

	Actual	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Cars washed	8800			8800			9000
Revenue	43080	40	U	43120	980	U	44100
Expenses:
Cleaning supplies	7560	520	U	7040	160	F	7200
Electricity	2670	150	U	2520	30	F	2550
Maintenance	2260	500	U	1760	40	F	1800
Wages and salaries	8500	860	U	7640	60	F	7700
Depreciation	6000	0	None	6000	0	None	6000
Rent	8000	0	None	8000	0	None	8000
Administrative expenses	4950	70	U	4880	20	F	4900
Total expenses	39940	2100	U	37840	310	F	38150
Net operating income	3140	2140	U	5280	670	U	5950