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				$	0.70
Electricity	$	1,100		$	0.05
Maintenance				$	0.20
Wages and salaries	$	4,300		$	0.20
Depreciation	$	8,100
Rent	$	2,000
Administrative expenses	$	1,600		$	0.04

For example, electricity costs are $1,100 per month plus $0.05 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $6.30 per car washed.

  

The actual operating results for August appear below.

  

Lavage Rapide Income Statement For the Month Ended August 31
Actual cars washed		8,100
Revenue	$	52,500
Expenses:
Cleaning supplies		6,100
Electricity		1,470
Maintenance		1,840
Wages and salaries		6,260
Depreciation		8,100
Rent		2,200
Administrative expenses		1,820
Total expense		27,790
Net operating income	$	24,710

Required:

Complete the flexible budget performance report that shows the company’s activity variances and revenue and spending 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 Revenue and Spending Variances Activity Variances Revenue F $630 F Expenses: Cleaning supplies U 70 U Electricity F 5 U Maintenance U 20 U Wages and salaries U 20 U Depreciation None 0 None Rent U 0 None Administrative expenses F 4 U Total expense U 119 U Net operating income F $511 F

Answer 1

*Increase in expenses from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
*Decrease in expenses from flexible budget to actual results & Planning budget to flexible budget =   Favorable.
Spending variance   =   Actual results - Flexible budget
Activity variance =   Flexible budget - Planning budget
*Increase in revenue or net operating income from Planning budget to flexible budget and flexible budget to actual results =   Favorable.
*Decrease in revenue or net operating income from Planning budget to flexible budget and flexible budget to actual results =   Unfavorable.