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		$	0.06
Maintenance				$	0.25
Wages and salaries	$	4,500		$	0.40
Depreciation	$	8,400
Rent	$	2,000
Administrative expenses	$	1,800		$	0.04

For example, electricity costs are $1,400 per month plus $0.06 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.10 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		8,300
Revenue	$	52,120
Expenses:
Cleaning supplies		6,240
Electricity		1,862
Maintenance		2,290
Wages and salaries		8,140
Depreciation		8,400
Rent		2,200
Administrative expenses		2,028
Total expense		31,160
Net operating income	$	20,960

Required:

Calculate the company's 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

Lavage Rapide
Flexible Budget performance report
For the month ended August 31
		Actual	Revenue and Spending Variance	Flexible Budget	Activity Variance	Planning Budget
Cars washed	(q)	8,300			8,300			8,200
Revenue	($6.10 X q)	$     52,120	$   1,490	F	$ 50,630	$         610	F	$      50,020
Expenses:
Cleaning	($0.70 X q)	$       6,240	$       430	U	$   5,810	$           70	U	$         5,740
Electricity	[$1,400+ ($0.06 X q)]	$       1,862	$         36	F	$   1,898	$             6	U	$         1,892
Maintenance	($0.25X q)	$       2,290	$       215	U	$   2,075	$           25	U	$         2,050
Wages and Salaries	[$4,500+ ($0.40 X q)]	$       8,140	$       320	U	$   7,820	$           40	U	$         7,780
Depreciation	$                            8,400	$       8,400	$          -	None	$   8,400	$            -	None	$         8,400
Rent	$                            2,000	$       2,200	$       200	U	$   2,000	$            -	None	$         2,000
Administrative Expenses	[$1,800+ ($0.04 X q)]	$       2,028	$       104	F	$   2,132	$             4	U	$         2,128
Total expense		$     31,160	$   1,025	U	$ 30,135	$         145	U	$      29,990
Net operating income		$     20,960	$       465	F	$ 20,495	$         465	F	$      20,030

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