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	$	1,300		$	0.09
Maintenance				$	0.30
Wages and salaries	$	4,900		$	0.20
Depreciation	$	8,300
Rent	$	2,000
Administrative expenses	$	1,800		$	0.02

For example, electricity costs are $1,300 per month plus $0.09 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.40 per car washed.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,300
Revenue	$	54,580
Expenses:
Cleaning supplies		6,240
Electricity		2,008
Maintenance		2,700
Wages and salaries		6,900
Depreciation		8,300
Rent		2,200
Administrative expenses		1,864
Total expense		30,212
Net operating income	$	24,368

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

Solution

Lavage Rapide
Revenues and Spending Variance
For the Month ended August 31
Revenue	$ 1,460.00	F
Expenses:
Cleaning supplies	$ 430.00	U
Electricity	$ 39.00	F
Maintenance	$ 210.00	U
Wages and salaries	$ 340.00	U
Depreciation	$ 0.00	None
Rent	$ 200.00	U
Administrative expenses	$ 102.00	F
Total Expenses	$ 1,039.00	U
Net Operating Income	$ 421.00	F

Working

	Units (A)	Fixed cost (B)	Variable cost per unit ©	Flexible cost and revenue (D=(A x C) +B)	E= Actual amounts	F=(D-E)Difference
Revenue	8300	$               -	$       6.40	$ 53,120.00	$ 54,580.00	$     (1,460.00)
Expenses:	8300
Cleaning supplies	8300		$       0.70	$    5,810.00	$    6,240.00	$        (430.00)
Electricity	8300	$ 1,300.00	$       0.09	$    2,047.00	$    2,008.00	$             39.00
Maintenance	8300		$       0.30	$    2,490.00	$    2,700.00	$        (210.00)
Wages and salaries	8300	$ 4,900.00	$       0.20	$    6,560.00	$    6,900.00	$        (340.00)
Depreciation	8300	$ 8,300.00		$    8,300.00	$    8,300.00	$                    -
Rent	8300	$ 2,000.00		$    2,000.00	$    2,200.00	$        (200.00)
Administrative expenses	8300	$ 1,800.00	$       0.02	$    1,966.00	$    1,864.00	$           102.00
Total Expenses				$ 29,173.00	$ 30,212.00	$     (1,039.00)
Net Operating Income				$ 23,947.00	$ 24,368.00	$        (421.00)