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				$	0.40
Electricity	$	1,300		$	0.10
Maintenance				$	0.25
Wages and salaries	$	5,000		$	0.40
Depreciation	$	8,200
Rent	$	1,900
Administrative expenses	$	1,600		$	0.03

For example, electricity costs are $1,300 per month plus $0.10 per car washed. The company expects to wash 8,200 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		8,300
Revenue	$	53,760
Expenses:
Cleaning supplies		3,780
Electricity		2,090
Maintenance		2,290
Wages and salaries		8,640
Depreciation		8,200
Rent		2,100
Administrative expenses		1,746
Total expense		28,846
Net operating income	$	24,914

Answer 1

Activity variance = Flxexible budget          - planned budget
	where	Flexible budget = fixed cost per month + 8,300*cost per car washed
		Planned budget = fixed cost per month +8,200*cost per cash washed
			fixed cost	cost per		8,300	8,200
			per monht	car washed		Flexible	planned	Activity variance
	Revenue	6.3				52290	51660	630	F
	Expenses
	Cleaning supplies			0.4		3320	3280	40	U
	Electricity		1,300	0.1		2130	2120	10	U
	Maintenance			0.25		2075	2050	25	U
	Wages and salaries		5,000	0.4		8320	8280	40	U
	Depreciation		8,200			8,200	8,200	0	N
	Rent		1,900			1,900	1,900	0	N
	Administrative expenses		1,600	0.03		1,849	1,846	3	N
	total expense		18000	1.18		27794	27676	118	U
	net operating income					24496	23984	512	F
			Revenue and Spending variance
			Actual	Flexible	Revenue & spending
			Result	budget	variance
	Revenue		53,760	52290	1,470	F
	Expenses
	Cleaning supplies		3,780	3320	460	U
	Electricity		2,090	2130	40	F
	Maintenance		2,290	2075	215	U
	Wages and salaries		8,640	8320	320	U
	Depreciation		8,200	8,200	0	N
	Rent		2,100	1,900	200	U
	Administrative expenses		1,746	1,849	103	F
	total expense		28,846	27,794	1,052	U
	net operating income		24,914	24,496	418	F
			Flexible budget variance
			Actual	Revenue and spending		Flexible	Activity variance		planned
			Result	variance		budget			budget
	Cars washed		8,300			8,300			8,200
	Revenue		53,760	1,470	F	52290	630	F	51660
	Expenses
	Cleaning supplies		3,780	460	U	3320	40	U	3280
	Electricity		2,090	40	F	2130	10	U	2120
	Maintenance		2,290	215	U	2075	25	U	2050
	Wages and salaries		8,640	320	U	8320	40	U	8280
	Depreciation		8,200	0	N	8,200	0	N	8,200
	Rent		2,100	200	N	1,900	0	N	1,900
	Administrative expenses		1,746	103	F	1,849	3	N	1,846
	total expense		28,846	1,052	U	27,794	118	U	27,676
	net operating income		24,914	418	F	24,496	512	F	23,984