Question

In: Accounting

Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near...

Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s expected costs:

Fixed Cost
per Month
Cost per
Car Washed
  Cleaning supplies      $ 0.80  
  Electricity   $ 2,150   0.20  
  Maintenance      0.40  
  Wages and salaries   5,400   0.50  
  Depreciation   9,000     
  Rent   2,800     
  Administrative expenses   2,520   0.05  


For example, electricity costs are $2,150 per month plus $0.20 per car washed. The company expects to wash 8,700 cars in October and to collect an average of $6.60 per car washed.

Auto Lavage’s actual level of activity was 8,800 cars. The actual revenues and expenses for October are given below:

Auto Lavage
Income Statement
For the Month Ended October 31
  Actual cars washed 8,800  
  Sales $ 60,300  
Variable expenses:
  Cleaning supplies 7,640  
  Electricity 1,820  
  Maintenance 2,990  
  Wages and salaries 4,760  
  Administrative 520  
Fixed expenses:
  Electricity 2,220  
  Wages and salaries 5,400  
  Depreciation 9,000  
  Rent 2,800  
  Administrative 2,445  
  Total expense 39,595  
  Net operating income $ 20,705  


Required:
1. Prepare a flexible budget performance report for October. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2. Prepare a comprehensive performance report for October. Assume that the static budget for October was based on an activity level of 8,700 cars. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Solutions

Expert Solution

1.

AUTO LAVAGE

Flexible Budget Performance Report

For The Month Ended October 31

Actual Results Flexible Budget Variance Flexible Budget
Sales $60,300 $2,220 F $58,080 (8,800*$6.60)
Variable expenses:
Cleaning supplies 7,640 600 U 7,040 (8,800*0.80)
Electricity 1,820 60 U 1,760 (8,800*0.20)
Maintenance 2,990 530 F 3,520 (8,800*0.40)
Wages and salaries 4,760 360 U 4,400 (8,800*0.50)
Administrative 520 80 U 440 (8,800*0.05)
Total variable expenses 17,730 570 U 17,160
Contribution margin 42,570 1,650 F 40,920
Fixed expenses:
Electricity 2,220 70 U 2,150
Wages and salaries 5,400 0 None 5,400
Depreciation 9,000 0 None 9,000
Rent 2,800 0 None 2,800
Administrative 2,445 75 F 2,520
Total fixed expenses 21,865 5 F 21,870
Net income $20,705 $1,655 F $19,050

2.

AUTO LAVAGE

Comprehensive Performance Report

For The Month Ended October 31

Actual Results Flexible Budget Variance Flexible Budget Sales volume variance Static Budget
Sales $60,300 $2,220 F $58,080 (8,800*$6.60) $660 F $57,420 (8,700*$6.60)
Variable expenses:
Cleaning supplies 7,640 600 U 7,040 (8,800*0.80) 80 U 6,960 (8,700*0.80)
Electricity 1,820 60 U 1,760 (8,800*0.20) 20 U 1,740 (8,700*0.20)
Maintenance 2,990 530 F 3,520 (8,800*0.40) 40 U 3,480 (8,700*0.40)
Wages and salaries 4,760 360 U 4,400 (8,800*0.50) 50 U 4,350 (8,700*0.50)
Administrative 520 80 U 440 (8,800*0.05) 5 U 435 (8,700*0.05)
Total variable expenses 17,730 570 U 17,160 195 U 16,965
Contribution margin 42,570 1,650 F 40,920 465 F 40,455
Fixed expenses:
Electricity 2,220 70 U 2,150 0 None 2,150
Wages and salaries 5,400 0 None 5,400 0 None 5,400
Depreciation 9,000 0 None 9,000 0 None 9,000
Rent 2,800 0 None 2,800 0 None 2,800
Administrative 2,445 75 F 2,520 0 None 2,520
Total fixed expenses 21,865 5 F 21,870 0 None 21,870
Net income $20,705 $1,655 F $19,050 $465 F $18,585

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