Question

Exercise 9-10 Planning 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				$	0.80
Electricity	$	1,400		$	0.08
Maintenance				$	0.25
Wages and salaries	$	4,500		$	0.40
Depreciation	$	8,300
Rent	$	2,100
Administrative expenses	$	1,400		$	0.02

For example, electricity costs are $1,400 per month plus $0.08 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.50 per car washed.

Required:

Prepare the company’s planning budget for August.

Answer 1

• Requirement

	Planning Static Budget
Cars washed	8,400
	[ Fixed + (Var x Planned units)]
Revenues	$                                        54,600.00
Expenses:
Cleaning Supplies	$                                          6,720.00
Electricity	$                                          2,072.00
Maintenance	$                                          2,100.00
Wages & Salaries	$                                          7,860.00
Depreciation	$                                          8,300.00
Rent	$                                          2,100.00
Administrative expense	$                                          1,568.00
Total Expenses	$                                        30,720.00
Net Operating Income	$                                        23,880.00

• Working

	WORKING COLUMNS
Cars washed
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues		(	$                  6.50	x	8400	)
Expenses:
Cleaning Supplies	$                      -	+(	$                  0.80	x	8400	)
Electricity	$         1,400.00	+(	$                  0.08	x	8400	)
Maintenance	$                      -	+(	$                  0.25	x	8400	)
Wages & Salaries	$         4,500.00	+(	$                  0.40	x	8400	)
Depreciation	$         8,300.00	+(	$                      -	x	8400	)
Rent	$         2,100.00	+(	$                      -	x	8400	)
Administrative expense	$         1,400.00	+(	$                  0.02	x	8400	)
Total Expenses	$      17,700.00	+(	$                  1.55	x	8400	)
Net Operating Income