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				$	0.70
Electricity	$	1,000		$	0.09
Maintenance				$	0.20
Wages and salaries	$	4,500		$	0.40
Depreciation	$	8,500
Rent	$	2,200
Administrative expenses	$	1,800		$	0.05

For example, electricity costs are $1,000 per month plus $0.09 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,300
Revenue	$	54,580
Expenses:
Cleaning supplies		6,240
Electricity		1,708
Maintenance		1,880
Wages and salaries		8,140
Depreciation		8,500
Rent		2,400
Administrative expenses		2,110
Total expense		30,978
Net operating income	$	23,602

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.)

Answer 1

	Actual Result	Revenue & Spending Variance		Flexible Budget	Activity variance		Planning Static Budget
Cars washed	8,300			8,300			8,200
Revenues	$               54,580.00	$         1,460.00	F	$             53,120.00	$                640.00	F	$          52,480.00
Expenses:
Cleaning Supplies	$                 6,240.00	$             430.00	U	$               5,810.00	$                  70.00	U	$             5,740.00
Electricity	$                 1,708.00	$               39.00	F	$               1,747.00	$                     9.00	U	$             1,738.00
Maintenance	$                 1,880.00	$             220.00	U	$               1,660.00	$                  20.00	U	$             1,640.00
Wages & Salaries	$                 8,140.00	$             320.00	U	$               7,820.00	$                  40.00	U	$             7,780.00
Depreciation	$                 8,500.00	$                      -	N	$               8,500.00	$                         -	None	$             8,500.00
Rent	$                 2,400.00	$             200.00	U	$               2,200.00	$                         -	None	$             2,200.00
Administrative expense	$                 2,110.00	$             105.00	F	$               2,215.00	$                     5.00	U	$             2,210.00
Total Expenses	$               30,978.00	$         1,026.00	U	$             29,952.00	$                144.00	U	$          29,808.00
Net Operating Income	$               23,602.00	$             434.00	F	$             23,168.00	$                496.00	F	$          22,672.00

• Working

		WORKING COLUMNS					Flexible Budget	Planning Static Budget
Cars washed							8,300	8,200
Revenues				$      6.40			$             53,120.00	$          52,480.00
Expenses:
Cleaning Supplies	(	$                      -	)	$      0.70	x 8300 or 8200		$               5,810.00	$             5,740.00
Electricity	(	$         1,000.00	)	$      0.09	x 8300 or 8200	)	$               1,747.00	$             1,738.00
Maintenance	(	$                      -	+	$      0.20	x 8300 or 8200	)	$               1,660.00	$             1,640.00
Wages & Salaries	(	$         4,500.00	+	$      0.40	x 8300 or 8200	)	$               7,820.00	$             7,780.00
Depreciation	(	$         8,500.00	+	$           -	x 8300 or 8200		$               8,500.00	$             8,500.00
Rent	(	$         2,200.00	)	$           -	x 8300 or 8200		$               2,200.00	$             2,200.00
Administrative expense	(	$         1,800.00	+	$      0.05	x 8300 or 8200	)	$               2,215.00	$             2,210.00
Total Expenses		$      18,000.00		$      1.44			$             29,952.00	$          29,808.00
Net Operating Income							$             23,168.00	$          22,672.00