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 $1,400 cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expenses Cost per Car Washed $0.40 $0.09 $ 0.20 $0.40 $4,300 $8,000 $1,800 $1,500 $0.02 For example, electricity costs are $1,400 per month plus $0.09 per car washed. The company expects to wash 8,100 cars in August and to collect an average of $6.60 per car washed. The company actually washed 8,200 cars in August. Required: Calculate the company's 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

• Requirement

	Activity variance
Revenues	$                     660.00	F
Expenses:
Cleaning Supplies	$                       40.00	U
Electricity	$                         9.00	U
Maintenance	$                       20.00	U
Wages & Salaries	$                       40.00	U
Depreciation	$                              -	None
Rent	$                              -	None
Administrative expense	$                         2.00	U
Total Expenses	$                     111.00	U
Net Operating Income	$                     549.00	F

--Workings

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]

	WORKING COLUMNS						Flexible Budget	Planning Static Budget
Cars washed							8,200	8,100
							[C = Fixed + (Var x Actual units)]	[E= Fixed + (Var x Planned units)]
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues		(	$                  6.60	x	8200 or 8100	)	$                                   54,120.00	$                                        53,460.00
Expenses:
Cleaning Supplies	$                      -	+(	$                  0.40	x	8200 or 8100	)	$                                     3,280.00	$                                          3,240.00
Electricity	$         1,400.00	+(	$                  0.09	x	8200 or 8100	)	$                                     2,138.00	$                                          2,129.00
Maintenance	$                      -	+(	$                 0.20	x	8200 or 8100	)	$                                     1,640.00	$                                          1,620.00
Wages & Salaries	$         4,300.00	+(	$                  0.40	x	8200 or 8100	)	$                                     7,580.00	$                                          7,540.00
Depreciation	$         8,000.00	+(	$                      -	x	8200 or 8100	)	$                                     8,000.00	$                                          8,000.00
Rent	$         1,800.00	+(	$                      -	x	8200 or 8100	)	$                                     1,800.00	$                                          1,800.00
Administrative expense	$         1,500.00	+(	$                  0.02	x	8200 or 8100	)	$                                     1,664.00	$                                          1,662.00
Total Expenses	$      17,000.00	+(	$                  1.11	x	8200 or 8100	)	$                                   26,102.00	$                                        25,991.00
Net Operating Income							$                                   28,018.00	$                                        27,469.00