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				$	0.50
Electricity	$	1,400		$	0.08
Maintenance				$	0.15
Wages and salaries	$	4,500		$	0.30
Depreciation	$	8,400
Rent	$	1,800
Administrative expenses	$	1,700		$	0.01

For example, electricity costs are $1,400 per month plus $0.08 per car washed. The company expects to wash 8,300 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		8,400
Revenue	$	54,390
Expenses:
Cleaning supplies		4,650
Electricity		2,034
Maintenance		1,485
Wages and salaries		7,350
Depreciation		8,400
Rent		2,000
Administrative expenses		1,683
Total expense		27,602
Net operating income	$	26,788

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.)

Lavage Rapide
Revenue and Spending Variances
For the Month Ended August 31
Revenue
Expenses:
Cleaning supplies
Electricity
Maintenance
Wages and salaries
Depreciation
Rent
Administrative expenses
Total expense
Net operating income

Answer 1

Activity variance = Flxexible budget          - planned budget
	where	Flexible budget = fixed cost per month + 8,400*cost per car washed
		Planned budget = fixed cost per month +8,300*cost per cash washed
			fixed cost	cost per		8,400	8,300
			per monht	car washed		Flexible	planned
	Revenue	6.3				52920	52290
	Expenses
	Cleaning supplies			0.5		4200	4150
	Electricity		1,400	0.08		2072	2064
	Maintenance			0.15		1260	1245
	Wages and salaries		4,500	0.3		7020	6990
	Depreciation		8,400			8,400	8,400
	Rent		1,800			1,800	1,800
	Administrative expenses		1,700	0.01		1,784	1,783
	total expense		17800	1.04		26536	26432
	net operating income					26384	25858
			Revenue and Spending variance
			Actual	Flexible	Revenue & spending
			Result	budget	variance
	Revenue		54,390	52920	1,470	F
	Expenses
	Cleaning supplies		4,650	4200	450	U
	Electricity		2,034	2072	38	F
	Maintenance		1,485	1260	225	U
	Wages and salaries		7,350	7020	330	U
	Depreciation		8,400	8,400	0	N
	Rent		2,000	1,800	200	U
	Administrative expenses		1,683	1,784	101	F
	total expense		27,602	26,536	1,066	U
	net operating income		26,788	26,384	404	F