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	$	1,000		$	0.06
Maintenance				$	0.30
Wages and salaries	$	4,900		$	0.40
Depreciation	$	8,400
Rent	$	1,900
Administrative expenses	$	1,700		$	0.03

For example, electricity costs are $1,000 per month plus $0.06 per car washed. The company expects to wash 8,300 cars in August and to collect an average of $6.80 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,400
Revenue	$	58,540
Expenses:
Cleaning supplies		4,650
Electricity		1,468
Maintenance		2,730
Wages and salaries		8,580
Depreciation		8,400
Rent		2,100
Administrative expenses		1,849
Total expense		29,777
Net operating income	$	28,763

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.)

ounts as positive values.)

Answer 1

Lavage Rapide
Flexible Budget Performance Report
For the Month Ended August 31
	Actual Results	Revenue and Spending Variance		Flexible Budget	Activity Variance		Planning Budget
Cars washed	8400			8400			8300
Revenue	58540	(58540-57120)= 1420	F	57120	(57120-56440)= 680	F	56440
Expenses:
Cleaning supplies	4650	(4650-4200)= 450	U	4200	(4200-4150)= 50	U	4150
Electricity	1468	(1468-1504)= 36	F	1504	(1504-1498)= 6	U	1498
Maintenance	2730	(2730-2520)= 210	U	2520	(2520-2490)= 30	U	2490
Wages and salaries	8580	(8580-8260)= 320	U	8260	(8260-8220)= 40	U	8220
Depreciation	8400	0	NONE	8400	0	NONE	8400
Rent	2100	(2100-1900)= 200	U	1900	0	NONE	1900
Administrative expenses	1849	(1849-1952)= 103	F	1952	(1952-1949)= 3	U	1949
Total expense	29777	1041	U	28736	129	U	28607
Net operating income	28763	379	F	28384	551	F	27833

Calculation of Flexible Budget

Revenue= 8400*$6.80= $57120

Cleaning supplies= 8400*0.50= $4200

Electricity= $1000+8400*0.06= $1504

Maintenance= 8400*$0.30= $2520

Wages and salaries= $4900+8400*0.40= $8260

Administrative expenses= $1700+8400*0.03= $1952

Calculation of Planning Budget

Revenue= 8300*$6.80= $56440

Cleaning supplies= 8300*0.50= $4150

Electricity= $1000+8300*0.06= $1498

Maintenance= 8300*$0.30= $2490

Wages and salaries= $4900+8300*0.40= $8220

Administrative expenses= $1700+8300*0.03= $1949