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		$	0.09
Maintenance				$	0.15
Wages and salaries	$	4,300		$	0.20
Depreciation	$	8,300
Rent	$	1,900
Administrative expenses	$	1,500		$	0.01

For example, electricity costs are $1,300 per month plus $0.09 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.00 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,600
Revenue	$	53,100
Expenses:
Cleaning supplies		5,600
Electricity		2,035
Maintenance		1,515
Wages and salaries		6,360
Depreciation		8,300
Rent		2,100
Administrative expenses		1,485
Total expense		27,395
Net operating income	$	25,705

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.)

Answer 1

	Actual	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Cars washed	8600			8600			8500
Revenue	53100	1500	F	51600	600	F	51000
Expenses:
Cleaning supplies	5600	440	U	5160	60	U	5100
Electricity	2035	39	F	2074	9	U	2065
Maintenance	1515	225	U	1290	15	U	1275
Wages and salaries	6360	340	U	6020	20	U	6000
Depreciation	8300	0	None	8300	0	None	8300
Rent	2100	200	U	1900	0	None	1900
Administrative expenses	1485	101	F	1586	1	U	1585
Total expenses	27395	1065	U	26330	105	U	26225
Net operating income	25705	435	F	25270	495	F	24775