Question

Exercise 9-14 Prepare a Flexible Budget Performance Report [LO9-4]

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				$	0.80
Electricity	$	1,200		$	0.09
Maintenance				$	0.15
Wages and salaries	$	4,500		$	0.40
Depreciation	$	8,200
Rent	$	1,800
Administrative expenses	$	1,600		$	0.02

For example, electricity costs are $1,200 per month plus $0.09 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.30 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,500
Revenue	$	55,020
Expenses:
Cleaning supplies		7,220
Electricity		1,926
Maintenance		1,500
Wages and salaries		8,220
Depreciation		8,200
Rent		2,000
Administrative expenses		1,668
Total expense		30,734
Net operating income	$	24,286

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity 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 Results	Revenue and Spending Variance		Flexible Budget	Activity Variance		Planning Budget
Expected No. of car wash	8,500			8,500			8,400
Revenue	55,020	1,470	F	53,550	630	F	52,920
Expenses:
Cleaning Supplies	7,220	420	U	6,800	80	U	6,720
Electricity	1,926	39	F	1,965	9	U	1,956
Maintenance	1,500	225	U	1,275	15	U	1,260
Wages and Salary	8,220	320	U	7,900	40	U	7,860
Depreciation	8,200	-	None	8,200	-	None	8,200
Rent	2,000	200	U	1,800	-	None	1,800
Administrative Expense	1,668	102	F	1,770	2	U	1,768
Total Expense	30,734	1,024	U	29,710	146	U	29,564
Net Operating Income	24,286	446	F	23,840	484	F	23,356