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				$	0.60
Electricity	$	1,500		$	0.07
Maintenance				$	0.20
Wages and salaries	$	4,400		$	0.20
Depreciation	$	8,300
Rent	$	2,100
Administrative expenses	$	1,300		$	0.05

For example, electricity costs are $1,500 per month plus $0.07 per car washed. The company expects to wash 8,100 cars in August and to collect an average of $6.20 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,200
Revenue	$	52,320
Expenses:
Cleaning supplies		5,360
Electricity		2,037
Maintenance		1,860
Wages and salaries		6,380
Depreciation		8,300
Rent		2,300
Administrative expenses		1,605
Total expense		27,842
Net operating income	$	24,478

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	8200			8200			8100
Revenue	52320	1,480	F	50840	620	F	50220
Expenses:
Cleaning Supplies	5360	440	U	4920	60	U	4860
Electricity	2037	37	F	2074	7	U	2067
Maintenance	1860	220	U	1640	20	U	1620
Wages and Salary	6380	340	U	6040	20	U	6020
Depreciation	8300	-	None	8300	-	U	8300
Rent	2300	200	U	2100	-	U	2100
Administrative Expense	1605	105	F	1710	5	U	1705
Total Expense	27842	1,058	U	26784	112	U	26672
Net Operating Income	24478	422	F	24056	508	F	23548