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				$	0.70
Electricity	$	1,300		$	0.09
Maintenance				$	0.25
Wages and salaries	$	4,400		$	0.20
Depreciation	$	8,400
Rent	$	2,000
Administrative expenses	$	1,700		$	0.02

For example, electricity costs are $1,300 per month plus $0.09 per car washed. The company expects to wash 8,000 cars in August and to collect an average of $5.90 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,100
Revenue	$	49,300
Expenses:
Cleaning supplies		6,100
Electricity		1,990
Maintenance		2,240
Wages and salaries		6,360
Depreciation		8,400
Rent		2,200
Administrative expenses		1,760
Total expense		29,050
Net operating income	$	20,250

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	49300	1510	F	47790	590	F	47200
Expenses:
Cleaning supplies	6100	430	U	5670	70	U	5600
Electricity	1990	39	F	2029	9	U	2020
Maintenance	2240	215	U	2025	25	U	2000
Wages and salaries	6360	340	U	6020	20	U	6000
Depreciation	8400	0	None	8400	0	None	8400
Rent	2200	200	U	2000	0	None	2000
Administrative expenses	1760	102	F	1862	2	U	1860
Total expenses	29050	1044	U	28006	126	U	27880
Net operating income	20250	466	F	19784	464	F	19320