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				$	0.60
Electricity	$	1,300		$	0.06
Maintenance				$	0.20
Wages and salaries	$	4,200		$	0.30
Depreciation	$	8,500
Rent	$	2,100
Administrative expenses	$	1,700		$	0.03

For example, electricity costs are $1,300 per month plus $0.06 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.80 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,500
Revenue	$	59,220
Expenses:
Cleaning supplies		5,540
Electricity		1,774
Maintenance		1,920
Wages and salaries		7,080
Depreciation		8,500
Rent		2,300
Administrative expenses		1,852
Total expense		28,966
Net operating income	$	30,254

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and 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.)

	Lavage Rapide Flexible Budget Performance Report For the Month Ended August 31 Actual Results Flexible Budget Planning Budget Cars washed 8,500 Revenue $59,220 Expenses: Cleaning supplies 5,540 Electricity 1,774 Maintenance 1,920 Wages and salaries 7,080 Depreciation 8,500 Rent 2,300 Administrative expenses 1,852 Total expense 28,966 Net operating income $30,254

Answer 1

Lavage Rapide
Flexible Budget Performance Report
For the month ended August 31,
	-----Flexible Budget----
	Variable amount per unit	Total fixed costs	Actual	----Flexible Budget at ----	Planning Budget	Variance		Classification of variances
Car Washed			8500	8500	8400
Sales	6.8		59220	57800	57120	1420	Favourable	Revenue
Expenses
Cleaning supplies	0.6		5540	5100	5040	440	Unfavoruable	Spending
Electricity	0.06	1300	1774	1810	1804	-36	Favoruable	Spending & Activity
Maintenance	0.2		1920	1700	1680	220	Unfavoruable	Spending
Wages & Salaries	0.3	4200	7080	6750	6720	330	Unfavoruable	Spending & Activity
Depreciation	0	8500	8500	8500	8500	0	None	Activity
Rent	0	2100	2300	2100	2100	200	Unfavoruable	Activity
Administrative expenses	0.03	1700	1852	1955	1952	-103	Favoruable	Spending & Activity
Total expense			28966	27915	27796	1051	Unfavoruable
Net Operating Income			30254	29885	29324	369	Favoruable