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				$	0.80
Electricity	$	1,100		$	0.10
Maintenance				$	0.10
Wages and salaries	$	4,500		$	0.30
Depreciation	$	8,500
Rent	$	2,100
Administrative expenses	$	1,300		$	0.04

For example, electricity costs are $1,100 per month plus $0.10 per car washed. The company expects to wash 8,100 cars in August and to collect an average of $5.90 per car washed. The company actually washed 8,200 cars in August.

Required:

Calculate the company's activity variances for August.

Answer 1

	Static Budget	Activity Variance	Flexible Budget
Cars washed	8100	$                 100	F	8200
Revenue	$        47,790	$                 590	F	$          48,380
Expenses:		$                    -
Cleaning supplies	$          6,480	$                   80	U	$           6,560
Electricity	$          1,910	$                   10	U	$           1,920
Maintenance	$             810	$                   10	U	$              820
Wages and salaries	$          6,930	$                   30	U	$           6,960
Depreciation	$          8,500	$                    -	N	$           8,500
Rent	$          2,100	$                    -	N	$           2,100
Administrative expenses	$          1,624	$ 4	U	$           1,628
Total expense	$        28,354	$                 134	U	$          28,488
Net operating income	$        19,436	$                 456	F	$          19,892