Question

Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s expected costs:

	Fixed Cost per Month			Cost per Car Washed
Cleaning supplies				$	0.90
Electricity	$	3,450			0.30
Maintenance					0.50
Wages and salaries		6,600			0.60
Depreciation		10,200
Rent		4,000
Administrative expenses		3,740			0.07

For example, electricity costs are $3,450 per month plus $0.30 per car washed. The company expects to wash 9,900 cars in October and to collect an average of $7.80 per car washed.

Auto Lavage’s actual level of activity was 10,000 cars. The actual revenues and expenses for October are given below:

Auto Lavage Income Statement For the Month Ended October 31
Actual cars washed		10,000
Sales	$	79,900
Variable expenses:
Cleaning supplies		9,850
Electricity		3,082
Maintenance		4,525
Wages and salaries		6,250
Administrative		790
Fixed expenses:
Electricity		3,540
Wages and salaries		6,600
Depreciation		10,200
Rent		4,000
Administrative		3,645
Total expense		52,482
Net operating income	$	27,418

Prepare a flexible budget performance report for October. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2. Prepare a comprehensive performance report for October. Assume that the static budget for October was based on an activity level of 9,900 cars. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Answer 1

Correct Answer:

Correct Answer:

Auto Lavage
Flexible budget performance report
for the month ended October 31
	Actual Results	Variance		Flexible Budget	Variance		Static budget
Cars washed	10000	0	None	10000	100	Favourable	9900
Revenue	$                79,900.00	$           1,900.00	Favourable	$           78,000.00	$                   780.00	Favourable	$         77,220.00
Variable Expenses:		$                        -			$                             -
Cleaning supplies	$                   9,850.00	$               850.00	unfavourable	$             9,000.00	$                      90.00	Unfavourable	$           8,910.00
Electricity	$                   3,082.00	$                 82.00	unfavourable	$             3,000.00	$                      30.00	Unfavourable	$           2,970.00
Maintenance	$                   4,525.00	$            (475.00)	Favourable	$             5,000.00	$                      50.00	Unfavourable	$           4,950.00
Wages and salaries	$                   6,250.00	$               250.00	unfavourable	$             6,000.00	$                      60.00	Unfavourable	$           5,940.00
Administrative	$                      790.00	$                 90.00	unfavourable	$                 700.00	$                        7.00	Unfavourable	$               693.00
Fixed Expenses					$                             -
Electricity	$                   3,540.00	$                 90.00	unfavourable	$             3,450.00	$                             -	None	$           3,450.00
Wages and salaries	$                   6,600.00	$                        -	Favourable	$             6,600.00	$                             -	None	$           6,600.00
Depreciation	$                10,200.00	$                        -	None	$           10,200.00	$                             -	None	$         10,200.00
Rent	$                   4,000.00	$                        -	None	$             4,000.00	$                             -	None	$           4,000.00
Administrative expenses	$                  3,645.00	$               (95.00)	Favourable	$             3,740.00	$                             -	None	$           3,740.00
Total Expenses	$                52,482.00	$               792.00	unfavourable	$           51,690.00	$                   237.00	Unfavourable	$         51,453.00
Net operating income	$                27,418.00	$           1,108.00	Favourable	$           26,310.00	$                   543.00	Favourable	25,767.00

Requirement 2:

Comprehensive performance report
	Actual Results	Variance		Planning budget
Cars washed	$                      10,000	$                     100		$                   9,900
Revenue	$                      79,900	$                 2,680	F	$                 77,220
Variable Expenses:		$                        -
Cleaning supplies	$                         9,850	$                     940	U	$                   8,910
Electricity	$                         3,082	$                     112	U	$                   2,970
Maintenance	$                         4,525	$                  (425)	F	$                   4,950
Wages and salaries	$                         6,250	$                     310	U	$                   5,940
Administrative expenses	$                            790	$                       97	U	$                       693
Fixed Expenses
Electricity	$                         3,540	$                       90	U	$                   3,450
Wages and salaries	$                         6,600	$                        -	F	$                   6,600
Depreciation	$                      10,200	$                        -	F	$                 10,200
Rent	$                         4,000	$                        -	F	$                   4,000
Administrative expenses	$                         3,645	$                     (95)	F	$                   3,740
Total Expenses	$                      52,482	$                 1,029	U	$                 51,453
Net operating income	$                      27,418	$                 1,651	F	$                 25,767

End of Answer.

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