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				$	0.80
Electricity	$	1,200		$	0.15
Maintenance				$	0.20
Wages and salaries	$	5,000		$	0.30
Depreciation	$	6,000
Rent	$	8,000
Administrative expenses	$	4,000		$	0.10

For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars in August and to collect an average of $4.90 per car washed. The company actually washed 8,800 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

Answer

• Requirement: Activity Variance

	Activity variance
Revenues	$                980.00	U
Expenses:
Cleaning Supplies	$                160.00	F
Electricity	$                  30.00	F
Maintenance	$                  40.00	F
Wages & Salaries	$                  60.00	F
Depreciation	$                         -	None
Rent	$                         -	None
Administrative expense	$                  20.00	F
Total Expenses	$                310.00	F
Net Operating Income	$                670.00	U

		WORKING COLUMNS					Flexible Budget	Planning Static Budget
Cars washed							8,800	9,000
Revenues				$      4.90			$             43,120.00	$          44,100.00
Expenses:
Cleaning Supplies	(	$                      -	)	$      0.80	x 8800 or 9000		$               7,040.00	$             7,200.00
Electricity	(	$         1,200.00	)	$      0.15	x 8800 or 9000	)	$               2,520.00	$             2,550.00
Maintenance	(	$                      -	+	$      0.20	x 8800 or 9000	)	$               1,760.00	$             1,800.00
Wages & Salaries	(	$         5,000.00	+	$      0.30	x 8800 or 9000	)	$               7,640.00	$             7,700.00
Depreciation	(	$         6,000.00	+	$           -	x 8800 or 9000		$               6,000.00	$             6,000.00
Rent	(	$         8,000.00	)	$           -	x 8800 or 9000		$               8,000.00	$             8,000.00
Administrative expense	(	$         4,000.00	+	$      0.10	x 8800 or 9000	)	$               4,880.00	$             4,900.00
Total Expenses		$      24,200.00		$      1.55			$             37,840.00	$          38,150.00
Net Operating Income							$               5,280.00	$             5,950.00