Question

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash 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		$	0.07
Maintenance				$	0.10
Wages and salaries	$	4,500		$	0.40
Depreciation	$	8,200
Rent	$	2,000
Administrative expenses	$	1,700		$	0.03

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expected to wash 8,100 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		8,200
Revenue	$	56,370
Expenses:
Cleaning supplies		4,550
Electricity		1,637
Maintenance		1,050
Wages and salaries		8,100
Depreciation		8,200
Rent		2,200
Administrative expenses		1,843
Total expense		27,580
Net operating income	$	28,790

Required:

Compute the company's revenue and spending 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

Ans.	Lavage Rapide
	Flexible budget performance Report
	for the Year Ended August 31
		Actual results	Revenue and Spending	Flexible budget
			Variance
	Cars washed	8200		8200
	Revenue	56370	1430    F	54940
	Expenses:
	Cleaning supplies	4550	450     U	4100
	Electricity	1637	37      F	1674
	Maintenance	1050	230    U	820
	Wages and salaries	8100	320     U	7780
	Depreciation	8200	0    no effect	8200
	Rent	2200	200    U	2000
	Administrative expenses	1843	103     F	1946
	Total expenses	27580	1060   U	26520
	Net operating income	28790	370      F	28420
	*Calculation of Flexible budget:
		Flexible budget
	Revenue	8200*6.70
	Expenses:
	Cleaning supplies	8200*0.50
	Electricity	1100+(8200*0.07)
	Maintenance	8200*0.10
	Wages and salaries	4500+(8200*0.40)
	Depreciation	8200
	Rent	2000
	Administrative expenses	1700+(8200*0.03)
	*Revenue and Spending variance = Actual results - Flexible budget
	*Flexible budget is prepared on the basis of Actual units.
	Increase in Revenue & Net operating income from Flexible to Actual = Favorable.
	Decrease in Revenue & Net operating income from   Flexible to Actual = Unfavorable.
	Decrease in Expenses from Flexible to Actual = Favorable.
	Increase in Expenses from   Flexible to Actual = Unfavorable.