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				$	0.50
Electricity	$	1,000		$	0.08
Maintenance				$	0.25
Wages and salaries	$	4,000		$	0.40
Depreciation	$	8,100
Rent	$	2,200
Administrative expenses	$	1,700		$	0.04

For example, electricity costs are $1,000 per month plus $0.08 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $6.80 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	$	56,500
Expenses:
Cleaning supplies		4,500
Electricity		1,610
Maintenance		2,240
Wages and salaries		7,560
Depreciation		8,100
Rent		2,400
Administrative expenses		1,920
Total expense		28,330
Net operating income	$	28,170

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

	Actual	Revenue and spending variances		Flexible budget
Cars washed	8100			8100
Revenue	56500	1420	F	55080
Expenses:
Cleaning supplies	4500	450	U	4050
Electricity	1610	38	F	1648
Maintenance	2240	215	U	2025
Wages and salaries	7560	320	U	7240
Depreciation	8100	0	None	8100
Rent	2400	200	U	2200
Administrative expenses	1920	104	F	2024
Total expenses	28330	1043	U	27287
Net operating income	28170	377	F	27793