Question

Exercise 9-13 Revenue and Spending Variances [LO9-3]

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	$	1,100		$	0.07
Maintenance				$	0.20
Wages and salaries	$	4,400		$	0.40
Depreciation	$	8,200
Rent	$	2,000
Administrative expenses	$	1,700		$	0.05

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August are as follows:

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,500
Revenue	$	55,860
Expenses:
Cleaning supplies		5,540
Electricity		1,658
Maintenance		1,920
Wages and salaries		8,120
Depreciation		8,200
Rent		2,200
Administrative expenses		2,020
Total expense		29,658
Net operating income	$	26,202

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.)

Answer 1

Solution

Lavage Rapide
Revenues and Spending Variance
For the Month ended August 31
Revenue	$ 1,460.00	F
Expenses:
Cleaning supplies	$ 440.00	U
Electricity	$ 37.00	F
Maintenance	$ 220.00	U
Wages and salaries	$ 320.00	U
Depreciation	$ 0.00	None
Rent	$ 200.00	U
Administrative expenses	$ 105.00	F
Total Expenses	$ 1,038.00	U
Net Operating Income	$ 422.00	F

Working

	Units (A)	Fixed cost (B)	Variable cost per unit (C )	Flexible cost and revenue (D=(A x C) +B)	E= Actual amounts	F=(D-E)Difference
Revenue	8500		$          6.40	$     54,400.00	$    55,860.00	$     (1,460.00)
Expenses:
Cleaning supplies	8500		$          0.60	$       5,100.00	$      5,540.00	$        (440.00)
Electricity	8500	$ 1,100.00	$          0.07	$       1,695.00	$      1,658.00	$             37.00
Maintenance	8500		$          0.20	$       1,700.00	$      1,920.00	$        (220.00)
Wages and salaries	8500	$ 4,400.00	$          0.40	$       7,800.00	$      8,120.00	$        (320.00)
Depreciation	8500	$ 8,200.00		$       8,200.00	$      8,200.00	$                    -
Rent	8500	$ 2,000.00		$       2,000.00	$      2,200.00	$        (200.00)
Administrative expenses	8500	$ 1,700.00	$          0.05	$       2,125.00	$      2,020.00	$           105.00
Total Expenses				$     28,620.00	$    29,658.00	$     (1,038.00)
Net Operating Income				$     25,780.00	$    26,202.00	$        (422.00)