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

Ans.	Lavage Rapide
	Flexible Budget Performance Report
	For the Month Ended August 31
		Actual Results	Rev. & Spend.	Variance	Flexible budget	Activity variance		Planning budget
	Cars washed	8500			8500			8400
	Revenue	59220	1420	F	57800	680	F	57120
	Expenses:
	Cleaning supplies	5540	440	U	5100	60	U	5040
	Electricity	1774	36	F	1810	6	U	1804
	Maintenance	1920	220	U	1700	20	U	1680
	Wages and salaries	7080	330	U	6750	30	U	6720
	Depreciation	8500	0	no effect	8500	0	no effect	8500
	Rent	2300	200	U	2100	0	no effect	2100
	Admiinistrative expenses	1852	103	F	1955	3	U	1952
	Total expense	28966	1051	U	27915	119	U	27796
	Net operating income	30254	369	F	29885	561	F	29324
	*Calculations for flexible budget & Planning budget:
		Flexible	Planning
	Cars washed	8500	8400
	Revenue	8500*6.80	8400*6.80
	Expenses:
	Cleaning supplies	8500*0.60	8400*0.60
	Electricity	1300+(8500*0.06)	1300+(8400*0.06)
	Maintenance	8500*0.20	8400*0.20
	Wages and salaries	4200+(8500*0.30)	4200+(8400*0.30)
	Depreciation	8500	8500
	Rent	2100	2100
	Admiinistrative expenses	1700+(8500*0.03)	1700+(8400*0.03)
	*Revenue & Spending variance   =    Actual results - Flexible budget
	*Activity variance =   Flexible budget - Planning budget
	*Increase in Revenue, operating income & decrease in expenses =   Favorable
	*Decrease in Revenue, operating income & Increase in expenses =   Unfavorable
	*Flexible budget is prepared on the basis of actual units (cars washed).