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 por Month Cost per Car Washed $ 0.70 $ 0.09 $ 0.10 $ 0.30 Cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expensos $ 1,200 $ 4,900 $ 8, 200 $2,000 $1,700 $ 0.02 For example, electricity costs are $1,200 per month plus $0.09 per car washed. The company expects to wash 8,100 cars in August and to collect an average of $6.60 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, 200 $ 55, 560 Revenue Expenses: Cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expenses Total expense Net operating income 6, 170 1,899 1,050 7,690 8,200 2,200 1, 762 28,971 $ 26, 589

Answer 1

Answer

• Requirement

	Actual Result	Revenue & Spending Variance		Flexible Budget
Cars washed	8,200			8,200
	[A]	[B = Difference between A & C]		[C = Fixed + (Var x Actual units)]
Revenues	$          55,560.00	$                  1,440.00	F	$                                   54,120.00
Expenses:
Cleaning Supplies	$            6,170.00	$                     430.00	U	$                                     5,740.00
Electricity	$            1,899.00	$                        39.00	F	$                                     1,938.00
Maintenance	$            1,050.00	$                     230.00	U	$                                         820.00
Wages & Salaries	$            7,690.00	$                     330.00	U	$                                     7,360.00
Depreciation	$            8,200.00	$                               -	N	$                                     8,200.00
Rent	$            2,200.00	$                     200.00	U	$                                     2,000.00
Administrative expense	$            1,762.00	$                     102.00	F	$                                     1,864.00
Total Expenses	$          28,971.00	$                  1,049.00	U	$                                   27,922.00
Net Operating Income	$         26,589.00	$                     391.00	F	$                                   26,198.00

--Working

	WORKING COLUMNS
Cars washed
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues		(	$                  6.60	x	8200 or 8500	)
Expenses:
Cleaning Supplies	$                      -	+(	$                  0.70	x	8200 or 8500	)
Electricity	$         1,200.00	+(	$                  0.09	x	8200 or 8500	)
Maintenance	$                      -	+(	$                  0.10	x	8200 or 8500	)
Wages & Salaries	$         4,900.00	+(	$                  0.30	x	8200 or 8500	)
Depreciation	$         8,200.00	+(	$                      -	x	8200 or 8500	)
Rent	$         2,000.00	+(	$                      -	x	8200 or 8500	)
Administrative expense	$         1,700.00	+(	$                  0.02	x	8200 or 8500	)
Total Expenses	$      18,000.00	+(	$                  1.21	x	8200 or 8500	)

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]