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				$	0.40
Electricity	$	1,300		$	0.08
Maintenance				$	0.20
Wages and salaries	$	4,400		$	0.30
Depreciation	$	8,300
Rent	$	1,800
Administrative expenses	$	1,400		$	0.02

For example, electricity costs are $1,300 per month plus $0.08 per car washed. The company expected to wash 8,200 cars in August and to collect an average of $6.60 per car washed. The company actually washed 8,300 cars.

The actual operating results for August appear below.

  

Lavage Rapide Income Statement For the Month Ended August 31
Actual cars washed		8,300
Revenue	$	56,220
Expenses:
Cleaning supplies		3,780
Electricity		1,926
Maintenance		1,880
Wages and salaries		7,220
Depreciation		8,300
Rent		2,000
Administrative expenses		1,464
Total expense		26,570
Net operating income	$	29,650

Required:

Compute the company's 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.)

Auto Lavage Activity Variances For the Month Ended October 31
Revenue	$
Expenses:
Cleaning supplies
Electricity
Maintenance
Wages and salaries
Depreciation
Rent
Administrative expenses
Total expense
Net operating income	$

Answer 1

Activity variance = Flxexible budget          - planned budget
	where	Flexible budget = fixed cost per month + 8,300*cost per car washed
		Planned budget = fixed cost per month +8,200*cost per cash washed
			fixed cost	cost per		8,300	8,200
			per monht	car washed		Flexible	planned	Activity variance
	Revenue	6.6				54780	54120	660	F
	Expenses
	Cleaning supplies			0.4		3320	3280	40	U
	Electricity		1,300	0.08		1964	1956	8	U
	Maintenance			0.2		1660	1640	20	U
	Wages and salaries		4,400	0.3		6890	6860	30	U
	Depreciation		8,300			8,300	8,300	0	N
	Rent		1,800			1,800	1,800	0	N
	Administrative expenses		1,400	0.02		1,566	1,564	2	N
	total expense		17200	1		25500	25400	100	U
	net operating income					29280	28720	560	F