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				$	0.40
Electricity	$	1,400		$	0.05
Maintenance				$	0.30
Wages and salaries	$	4,200		$	0.30
Depreciation	$	8,200
Rent	$	2,100
Administrative expenses	$	1,600		$	0.04

For example, electricity costs are $1,400 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 are as follows:

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,100
Revenue	$	52,500
Expenses:
Cleaning supplies		3,700
Electricity		1,770
Maintenance		2,640
Wages and salaries		6,960
Depreciation		8,200
Rent		2,300
Administrative expenses		1,820
Total expense		27,390
Net operating income	$	25,110

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	8100			8100			8000
Revenue	52500	1470	F	51030	630	F	50400
Expenses:
Cleaning supplies	3700	460	U	3240	40	U	3200
Electricity	1770	35	F	1805	5	U	1800
Maintenance	2640	210	U	2430	30	U	2400
Wages and salaries	6960	330	U	6630	30	U	6600
Depreciation	8200	0	None	8200	0	None	8200
Rent	2300	200	U	2100	0	None	2100
Administrative expenses	1820	104	F	1924	4	U	1920
Total expenses	27390	1061	U	26329	109	U	26220
Net operating income	25110	409	F	24701	521	F	24180