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				$	0.80
Electricity	$	1,300		$	0.06
Maintenance				$	0.25
Wages and salaries	$	4,400		$	0.30
Depreciation	$	8,000
Rent	$	2,100
Administrative expenses	$	1,600		$	0.03

For example, electricity costs are $1,300 per month plus $0.06 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.70 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,500
Revenue	$	58,380
Expenses:
Cleaning supplies		7,220
Electricity		1,774
Maintenance		2,340
Wages and salaries		7,280
Depreciation		8,000
Rent		2,300
Administrative expenses		1,752
Total expense		30,666
Net operating income	$	27,714

Required:

Prepare a flexible budget performance report including the master or planning budget 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.)

Answer 1

	Actual Result	Revenue & Spending Variance		Flexible Budget	Activity variance		Planning Static Budget
Cars washed	8,500			8,500			8,400
Revenues	$               58,380.00	$         1,430.00	F	$             56,950.00	$                670.00	F	$          56,280.00
Expenses:
Cleaning Supplies	$                 7,220.00	$             420.00	U	$               6,800.00	$                  80.00	U	$             6,720.00
Electricity	$                 1,774.00	$               36.00	F	$               1,810.00	$                     6.00	U	$             1,804.00
Maintenance	$                 2,340.00	$             215.00	U	$               2,125.00	$                  25.00	U	$             2,100.00
Wages & Salaries	$                 7,280.00	$             330.00	U	$               6,950.00	$                  30.00	U	$             6,920.00
Depreciation	$                 8,000.00	$                      -	N	$               8,000.00	$                         -	None	$             8,000.00
Rent	$                 2,300.00	$             200.00	U	$               2,100.00	$                         -	None	$             2,100.00
Administrative expense	$                 1,752.00	$             103.00	F	$               1,855.00	$                     3.00	U	$             1,852.00
Total Expenses	$               30,666.00	$         1,026.00	U	$             29,640.00	$                144.00	U	$          29,496.00
Net Operating Income	$               27,714.00	$             404.00	F	$             27,310.00	$                526.00	F	$          26,784.00

--Working

		WORKING COLUMNS					Flexible Budget	Planning Static Budget
Cars washed							8,500	8,400
Revenues				$      6.70			$             56,950.00	$          56,280.00
Expenses:
Cleaning Supplies	(	$                      -	)	$      0.80	x 8500 or 8400		$               6,800.00	$             6,720.00
Electricity	(	$         1,300.00	)	$      0.06	x 8500 or 8400	)	$               1,810.00	$             1,804.00
Maintenance	(	$                      -	+	$      0.25	x 8500 or 8400	)	$               2,125.00	$             2,100.00
Wages & Salaries	(	$         4,400.00	+	$      0.30	x 8500 or 8400	)	$               6,950.00	$             6,920.00
Depreciation	(	$         8,000.00	+	$           -	x 8500 or 8400		$               8,000.00	$             8,000.00
Rent	(	$         2,100.00	)	$           -	x 8500 or 8400		$               2,100.00	$             2,100.00
Administrative expense	(	$         1,600.00	+	$      0.03	x 8500 or 8400	)	$               1,855.00	$             1,852.00
Total Expenses		$      17,400.00		$      1.44			$             29,640.00	$          29,496.00
Net Operating Income							$             27,310.00	$          26,784.00