Question

Exercise 9-11 Flexible Budget [LO9-1]

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	$	1,400		$	0.07
Maintenance				$	0.10
Wages and salaries	$	4,000		$	0.30
Depreciation	$	8,400
Rent	$	1,900
Administrative expenses	$	1,800		$	0.04

For example, electricity costs are $1,400 per month plus $0.07 per car washed. The company actually washed 8,200 cars in August and collected an average of $5.90 per car washed.

Required:

Prepare the company’s flexible budget for August.

Answer 1

• Requirement

	Flexible Budget
Cars washed	8,200
	[Fixed + (Var x Actual units)]
Revenues	$                                   48,380.00
Expenses:
Cleaning Supplies	$                                     5,740.00
Electricity	$                                     1,974.00
Maintenance	$                                         820.00
Wages & Salaries	$                                     6,460.00
Depreciation	$                                     8,400.00
Rent	$                                     1,900.00
Administrative expense	$                                     2,128.00
Total Expenses	$                                   27,422.00
Net Operating Income	$                                   20,958.00

• Workings

	WORKING COLUMNS
Cars washed
	Fixed part	+(	Variable part	x	Actual units	)
Revenues		(	$                  5.90	x	8200	)
Expenses:
Cleaning Supplies	$                      -	+(	$                  0.70	x	8200	)
Electricity	$         1,400.00	+(	$                  0.07	x	8200	)
Maintenance	$                      -	+(	$                  0.10	x	8200	)
Wages & Salaries	$         4,000.00	+(	$                  0.30	x	8200	)
Depreciation	$         8,400.00	+(	$                      -	x	8200	)
Rent	$         1,900.00	+(	$                      -	x	8200	)
Administrative expense	$         1,800.00	+(	$                  0.04	x	8200	)
Total Expenses	$      17,500.00	+(	$                  1.21	x	8200	)
Net Operating Income