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 $1,500 Cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expenses Cost per Car Washed $0.70 $0.07 $0.30 $0.30 $4,500 $8,400 $2,200 $1,800 $0.04 For example, electricity costs are $1,500 per month plus $0.07 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.80 per car washed. The actual operating results for August appear below. Lavage Rapide Income Statement For the Month Ended August 31 Actual cars washed 8,500 $ 59,220 Revenue Expenses: cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expenses Total expense Net operating income 6, 380 2,058 2,760 7,380 8,400 2,400 2,036 31,414 $ 27,806 Required: Calculate the company's revenue and spending 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

The revenue and spending variance can be computed by making a flexible budget using the actual figure of 8500 cars. The answer will be:

	Revenue and spending variance
Number of cars (Q)
Revenue	1,420	F
Expenses:
Cleaning supplies	430	U
Electricity	37	F
Maintenance	210	U
Wages and salaries	330	U
Depreciation	0	None
Rent	200	U
Admsinistrative expenses	104	F
Total expense	1,029	U
Net operating income	391	F

Calculations and explanations:

	Formula	Actual result	Flexible budget		Revenue and spending variance
Number of cars (Q)		8,500.00	8,500.00
Revenue	6.8Q	59,220.00	57,800.00		1,420.00	F
Expenses:
Cleaning supplies	0.70Q	6,380.00	5,950.00		430.00	U
Electricity	1500+0.07Q	2,058.00	2,095.00		37.00	F
Maintenance	0.30Q	2,760.00	2,550.00		210.00	U
Wages and salaries	4500+0.30Q	7,380.00	7,050.00		330.00	U
Depreciation	8,400.00	8,400.00	8,400.00		0	None
Rent	2,200.00	2,400.00	2,200.00		200.00	U
Admsinistrative expenses	1800+0.04Q	2,036.00	2,140.00		104.00	F
Total expense		31,414.00	30,385.00		1,029.00	U
Net operating income		27,806.00	27,415.00		391.00	F