Question

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash 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 expected to wash 9,000 cars in August and to collect an average of $4.90 per car washed.

  

The actual operating results for August appear below.

Lavage Rapide Income Statement For the Month Ended August 31
Actual cars washed		8,800
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:

Complete the flexible budget performance report that shows the company’s activity variances and revenue and spending 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	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