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				$	0.50
Electricity	$	1,400		$	0.07
Maintenance				$	0.30
Wages and salaries	$	4,100		$	0.40
Depreciation	$	8,400
Rent	$	2,000
Administrative expenses	$	1,500		$	0.02

For example, electricity costs are $1,400 per month plus $0.07 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $6.70 per car washed.

  

The actual operating results for August appear below.

  

Lavage Rapide Income Statement For the Month Ended August 31
Actual cars washed		8,100
Revenue	$	55,700
Expenses:
Cleaning supplies		4,500
Electricity		1,930
Maintenance		2,640
Wages and salaries		7,660
Depreciation		8,400
Rent		2,200
Administrative expenses		1,560
Total expense		28,890
Net operating income	$	26,810

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.)

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				$	0.50
Electricity	$	1,400		$	0.07
Maintenance				$	0.30
Wages and salaries	$	4,100		$	0.40
Depreciation	$	8,400
Rent	$	2,000
Administrative expenses	$	1,500		$	0.02

For example, electricity costs are $1,400 per month plus $0.07 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $6.70 per car washed.

  

The actual operating results for August appear below.

  

Lavage Rapide Income Statement For the Month Ended August 31
Actual cars washed		8,100
Revenue	$	55,700
Expenses:
Cleaning supplies		4,500
Electricity		1,930
Maintenance		2,640
Wages and salaries		7,660
Depreciation		8,400
Rent		2,200
Administrative expenses		1,560
Total expense		28,890
Net operating income	$	26,810

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

Flexible Budget Performance Report
	Revenue and Spending Variance		Activity Variance
Revenue	1430	F	670	F
Expenses:
Cleaning supplies	450	U	50	U
Electricity	37	F	7	U
Maintenance	210	U	30	U
Wages and salaries	320	U	40	U
Depreciation	0	None	0	None
Rent	0	None	0	None
Administrative expenses	102	F	2	U
Total expense	841	U	129	U
Net operating income	589	F	541	F

Workings

Flexible Budget
Actual cars washed	8,100
Revenue 8100*6.70	54,270
Expenses:
Cleaning supplies 8100*.50	4,050
Electricity 1400+8100*.07	1,967
Maintenance 8100*.30	2,430
Wages and salaries 4100+8100*.40	7,340
Depreciation	8,400
Rent	2,200
Administrative expenses   1500+8100*.02	1,662
Total expense	28,049
Net operating income	26,221
Planned Budget
Actual cars washed	8,000
Revenue 8000*6.70	53,600
Expenses:
Cleaning supplies 8000*.50	4,000
Electricity 1400+8000*.07	1,960
Maintenance 8000*.30	2,400
Wages and salaries 4100+8000*.40	7,300
Depreciation	8,400
Rent	2,200
Administrative expenses   1500+8000*.02	1,660
Total expense	27,920
Net operating income	25,680

Flexible Budget Performanc Report
	Actual	Revenue and Spending Variance		Flexible Budget	Activitiy Variance		Planned Budget
Revenue	55,700	1430	F	54,270	670	F	53,600
Expenses:
Cleaning supplies	4,500	450	U	4,050	50	U	4,000
Electricity	1,930	37	F	1,967	7	U	1,960
Maintenance	2,640	210	U	2,430	30	U	2,400
Wages and salaries	7,660	320	U	7,340	40	U	7,300
Depreciation	8,400	0	None	8,400	0	None	8,400
Rent	2,200	0	None	2,200	0	None	2,200
Administrative expenses	1,560	102	F	1,662	2	U	1,660
Total expense	28,890	841	U	28,049	129	U	27,920
Net operating income	26,810	589	F	26,221	541	F	25,680