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	$	1,100		$	0.07
Maintenance				$	0.30
Wages and salaries	$	4,600		$	0.20
Depreciation	$	8,300
Rent	$	1,900
Administrative expenses	$	1,400		$	0.02

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.90 per car washed.

The actual operating results for August are as follows:

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,500
Revenue	$	60,060
Expenses:
Cleaning supplies		4,700
Electricity		1,658
Maintenance		2,760
Wages and salaries		6,640
Depreciation		8,300
Rent		2,100
Administrative expenses		1,468
Total expense		27,626
Net operating income	$	32,434

Required:

Calculate the company's revenue and spending variances for August.

Answer 1

Solution

Lavage Rapide
Revenues and Spending Variance
For the Month ended August 31
Revenue	$ 1,410.00	F
Expenses:
Cleaning supplies	$ 450.00	U
Electricity	$ 37.00	F
Maintenance	$ 210.00	U
Wages and salaries	$ 340.00	U
Depreciation	$ 0.00	None
Rent	$ 200.00	U
Administrative expenses	$ 102.00	F
Total Expenses	$ 1,061.00	U
Net Operating Income	$ 349.00	F

Working

	Units (A)	Fixed cost (B)	Variable cost per unit (C )	Flexible cost and revenue (D=(A x C) +B)	E= Actual amounts	F=(D-E)Difference
Revenue	8500	$               -	$          6.90	$     58,650.00	$    60,060.00	$     (1,410.00)
Expenses:
Cleaning supplies	8500		$          0.50	$       4,250.00	$      4,700.00	$        (450.00)
Electricity	8500	$ 1,100.00	$          0.07	$       1,695.00	$      1,658.00	$             37.00
Maintenance	8500		$          0.30	$       2,550.00	$      2,760.00	$        (210.00)
Wages and salaries	8500	$ 4,600.00	$          0.20	$       6,300.00	$      6,640.00	$        (340.00)
Depreciation	8500	$ 8,300.00		$       8,300.00	$      8,300.00	$                    -
Rent	8500	$ 1,900.00		$       1,900.00	$      2,100.00	$        (200.00)
Administrative expenses	8500	$ 1,400.00	$          0.02	$       1,570.00	$      1,468.00	$           102.00
Total Expenses				$     26,565.00	$    27,626.00	$     (1,061.00)
Net Operating Income				$     32,085.00	$    32,434.00	$        (349.00)