Question

Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s expected costs:

	Fixed Cost per Month			Cost per Car Washed
Cleaning supplies				$	0.70
Electricity	$	2,800			0.10
Maintenance					0.30
Wages and salaries		6,000			0.40
Depreciation		9,600
Rent		3,400
Administrative expenses		3,130			0.07

For example, electricity costs are $2,800 per month plus $0.10 per car washed. The company expects to wash 9,300 cars in October and to collect an average of $7.20 per car washed.

Auto Lavage’s actual level of activity was 9,400 cars. The actual revenues and expenses for October are given below:

Auto Lavage Income Statement For the Month Ended October 31
Actual cars washed		9,400
Sales	$	70,000
Variable expenses:
Cleaning supplies		7,350
Electricity		1,018
Maintenance		2,458
Wages and salaries		4,140
Administrative		710
Fixed expenses:
Electricity		2,880
Wages and salaries		6,000
Depreciation		9,600
Rent		3,400
Administrative		3,045
Total expense		40,601
Net operating income	$	29,399

Required:
1. Prepare a flexible budget performance report for October. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2. Prepare a comprehensive performance report for October. Assume that the static budget for October was based on an activity level of 9,300 cars. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Answer 1

					9,400
			Flexible budget performance report
			cost form	Actual	Flexible	Flexible budget
			per car		budget	variance
Revenue			7.2	70,000	67680	2,320	F
variable expenses:
Cleaning supplies			0.7	7,350	6580	770	U
Electricity			0.1	1,018	940	78	U
Maintenance			0.3	2,458	2820	362	F
Wages and salaries			0.4	4,140	3760	380	U
Administrative			0.07	710	658	52	U
total variable expense			1.57	15,676	14758	918	U
contribution margin			5.63	54,324	52922	1,402	F
fixed expenses:
Electricity				2,880	2,800	80	U
Wages and salaries				6,000	6,000	0	N
Depreciation				9,600	9,600	0	N
Rent				3,400	3,400	0	N
Administrative				3,045	3,130	85	F
Total fixed expense				24,925	24,930	5	F
net operating income				29,399	27,992	1,407	F
			COMREHENSIVE PERFORMANCE REPORT
			Actual	Flexbile budget vari		Flexible	Sales volume		static
			budget	Variance		budget	variance		budget
Number of cars			9,400			9,400			9,300
Revenue			70,000	2,320	F	67680	720	F	66960
variable expenses:
Cleaning supplies			7,350	770	U	6580	70	U	6510
Electricity			1,018	78	U	940	10	U	930
Maintenance			2,458	362	F	2820	30	U	2790
Wages and salaries			4,140	380	U	3760	40	U	3720
Administrative			710	52	U	658	7	U	651
total variable expense			15,676	918	U	14758	157	U	14601
contribution margin			54,324	1,402	F	52922	563	F	52359
fixed expenses:
Electricity			2,880	80	U	2,800	0	N	2,800
Wages and salaries			6,000	0	N	6,000	0	N	6,000
Depreciation			9,600	0	N	9,600	0	N	9,600
Rent			3,400	0	N	3,400	0	N	3,400
Administrative			3,045	85	F	3,130	0	N	3,130
Total fixed expense			24,925	5	F	24,930	0	N	24,930
net operating income			29,399	1,407	F	27,992	563	F	27,429