Question

Exercise 9-14 Prepare a Flexible Budget Performance Report [LO9-4]

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				$	0.60
Electricity	$	1,400		$	0.10
Maintenance				$	0.20
Wages and salaries	$	4,400		$	0.30
Depreciation	$	8,100
Rent	$	1,800
Administrative expenses	$	1,700		$	0.02

For example, electricity costs are $1,400 per month plus $0.10 per car washed. The company expects to wash 8,300 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		8,400
Revenue	$	51,900
Expenses:
Cleaning supplies		5,480
Electricity		2,200
Maintenance		1,900
Wages and salaries		7,250
Depreciation		8,100
Rent		2,000
Administrative expenses		1,766
Total expense		28,696
Net operating income	$	23,204

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	8400			8400			8300
Revenue	51900	1500	F	50400	600	F	49800
Expenses:
Cleaning supplies	5480	440	U	5040	60	U	4980
Electricity	2200	40	F	2240	10	U	2230
Maintenance	1900	220	U	1680	20	U	1660
Wages and salaries	7250	330	U	6920	30	U	6890
Depreciation	8100	0	None	8100	0	None	8100
Rent	2000	200	U	1800	0	None	1800
Administrative expenses	1766	102	F	1868	2	U	1866
Total expenses	28696	1048	U	27648	122	U	27526
Net operating income	23204	452	F	22752	478	F	22274