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	$	1,100		$	0.06
Maintenance				$	0.20
Wages and salaries	$	4,500		$	0.20
Depreciation	$	8,100
Rent	$	2,100
Administrative expenses	$	1,400		$	0.05

For example, electricity costs are $1,100 per month plus $0.06 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.10 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,600
Revenue	$	53,950
Expenses:
Cleaning supplies		4,750
Electricity		1,580
Maintenance		1,940
Wages and salaries		6,560
Depreciation		8,100
Rent		2,300
Administrative expenses		1,725
Total expense		26,955
Net operating income	$	26,995

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity 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 Flexible Budget Performance Report For the Month Ended August 31 Actual Results Flexible Budget Planning Budget Cars washed 8,600 Revenue $53,950 Expenses: Cleaning supplies 4,750 Electricity 1,580 Maintenance 1,940 Wages and salaries 6,560 Depreciation 8,100 Rent 2,300 Administrative expenses 1,725 Total expense 26,955 Net operating income $26,995

Answer 1

Lavage Rapide
Flexible Budget performance report
For the month ended August 31
		Actual	Revenue and Spending Variance		Flexible Budget	Activity Variance		Planning Budget
Cars washed	(q)	8,600			8,600			8,500
Revenue	($6.10 X q)	$     53,950	$             1,490	F	$     52,460	$         610	F	$      51,850
Expenses:
Cleaning	($0.50 X q)	$       4,750	$                 450	U	$       4,300	$           50	U	$         4,250
Electricity	[$1,100+ ($0.06 X q)]	$       1,580	$                   36	F	$       1,616	$             6	U	$         1,610
Maintenance	($0.20 X q)	$       1,940	$                 220	U	$       1,720	$           20	U	$         1,700
Wages and Salaries	[$4,500+ ($0.20 X q)]	$       6,560	$                 340	U	$       6,220	$           20	U	$         6,200
Depreciation	$                            8,100	$       8,100	$                    -	None	$       8,100	$            -	None	$         8,100
Rent	$                            2,100	$       2,300	$                 200	U	$       2,100	$            -	None	$         2,100
Administrative Expenses	[$1400+ ($0.05 X q)]	$       1,725	$                 105	F	$       1,830	$             5	U	$         1,825
Total expense		$     26,955	$             1,069	U	$     25,886	$         101	U	$      25,785
Net operating income		$     26,995	$                 421	F	$     26,574	$         509	F	$      26,065