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				$	0.60
Electricity	$	1,200		$	0.07
Maintenance				$	0.25
Wages and salaries	$	4,500		$	0.20
Depreciation	$	8,200
Rent	$	2,000
Administrative expenses	$	1,300		$	0.03

For example, electricity costs are $1,200 per month plus $0.07 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.00 per car washed. The company actually washed 8,300 cars in August.

Required:

Calculate the company's 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.)

Answer 1

Lavage Rapide
Flexible Budget Performance Report
	Flexible Budget	Activity Variances		Planning Budget
Car washed (q)	8300			8200
Revenue (6xq)	49800	600	F	49200
Expenses:
Cleaning supplies(0.6x Q)	4980	60	U	4920
Electricity(1200+(0.07x Q))	1781	7	U	1774
Maintenance(0.25x Q)	2075	25	U	2050
Wages and salaries(4500+(0.2x Q))	6160	20	U	6140
Depreciation (8200)	8200	0		8200
Rent(2000)	2000	0		2000
Administrative expenses(1300+(0.03x Q))	1549	3	U	1546
Total expense	26745	115	U	26630
Net operating income	23055	485	F	22570

Working notes for the above answer is as under