Question

Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s expected costs:

	Fixed Cost per Month			Cost per Car Washed
Cleaning supplies				$	0.90
Electricity	$	2,050			0.30
Maintenance					0.50
Wages and salaries		5,300			0.60
Depreciation		8,900
Rent		2,700
Administrative expenses		2,410			0.04
For example, electricity costs are $2,050 per month plus $0.30 per car washed. The company expects to wash 8,600 cars in October and to collect an average of $8.00 per car washed. Auto Lavage’s actual level of activity was 8,700 cars. The actual revenues and expenses for October are given below: Auto Lavage Income Statement For the Month Ended October 31   Actual cars washed 8,700     Sales $ 71,500   Variable expenses:   Cleaning supplies 8,450     Electricity 2,700     Maintenance 3,825     Wages and salaries 5,360     Administrative 446   Fixed expenses:   Electricity 2,110     Wages and salaries 5,300     Depreciation 8,900     Rent 2,700     Administrative 2,345     Total expense 42,136     Net operating income $ 29,364   Required: 1. Prepare a flexible budget performance report for October. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) 2. Prepare a comprehensive performance report for October. Assume that the static budget for October was based on an activity level of 8,600 cars. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Answer 1

Auto Lavage
Flexible Budget performance report
For the month ended October 31
		Revenue and Spending Variances		Activity Variance
Cars washed	(q)
Revenue	($8 X q)	$   1,900	F	$     800	F
Expenses:		$          -	$          -	$        -	$    -
Cleaning	($0.90 X q)	$       620	U	$       90	U
Electricity	[$2,050+ ($0.3 X q)]	$       150	U	$       30	U
Maintenance	($0.5X q)	$       525	F	$       50	U
Wages and Salaries	[$5,300+ ($0.6 X q)]	$       140	U	$       60	U
Depreciation	$                            8,900	$          -	None	$        -	None
Rent	$                            2,700	$          -	None	$        -	None
Administrative Expenses	[$2,410+ ($0.04 X q)]	$         33	U	$         4	U
Total expense		$       418	U	$     234	U
Net operating income		$   1,482	F	$     566	F
	Workings:
Auto Lavage
Flexible Budget performance report
For the month ended October 31
		Planning Budget	Flexible Budget	Activity Variance
Cars washed	(q)	8,600	8,700
Revenue	($8 X q)	$ 68,800	$ 69,600	$     800	F
Expenses:
Cleaning	($0.90 X q)	$   7,740	$   7,830	$       90	U
Electricity	[$2,050+ ($0.3 X q)]	$   4,630	$   4,660	$       30	U
Maintenance	($0.5X q)	$   4,300	$   4,350	$       50	U
Wages and Salaries	[$5,300+ ($0.6 X q)]	$ 10,460	$ 10,520	$       60	U
Depreciation	$                            8,900	$   8,900	$   8,900	$        -	None
Rent	$                            2,700	$   2,700	$   2,700	$        -	None
Administrative Expenses	[$2,410+ ($0.04 X q)]	$   2,754	$   2,758	$         4	U
Total expense		$ 41,484	$ 41,718	$     234	U
Net operating income		$ 27,316	$ 27,882	$     566	F
Auto Lavage
Flexible Budget performance report
For the month ended October 31
		Flexible Budget	Actual results	Revenue and Spending Variances
Cars washed	(q)	8,700	8,700
Revenue	($8 X q)	$ 69,600	$ 71,500	$ 1,900	F
Expenses:
Cleaning	($0.90 X q)	$   7,830	$   8,450	$     620	U
Electricity	[$2,050+ ($0.3 X q)]	$   4,660	$   4,810	$     150	U
Maintenance	($0.5X q)	$   4,350	$   3,825	$     525	F
Wages and Salaries	[$5,300+ ($0.6 X q)]	$ 10,520	$ 10,660	$     140	U
Depreciation	$                            8,900	$   8,900	$   8,900	$        -	None
Rent	$                            2,700	$   2,700	$   2,700	$        -	None
Administrative Expenses	[$2,410+ ($0.04 X q)]	$   2,758	$   2,791	$       33	U
Total expense		$ 41,718	$ 42,136	$     418	U
Net operating income		$ 27,882	$ 29,364	$ 1,482	F