Question

Exercise 9-14 Prepare a Flexible Budget Performance Report [LO9-4]

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				$	0.60
Electricity	$	1,300		$	0.07
Maintenance				$	0.10
Wages and salaries	$	4,300		$	0.40
Depreciation	$	8,100
Rent	$	2,000
Administrative expenses	$	1,500		$	0.03

For example, electricity costs are $1,300 per month plus $0.07 per car washed. The company expects to wash 8,500 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		8,600
Revenue	$	59,900
Expenses:
Cleaning supplies		5,600
Electricity		1,865
Maintenance		1,090
Wages and salaries		8,060
Depreciation		8,100
Rent		2,200
Administrative expenses		1,655
Total expense		28,570
Net operating income	$	31,330

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	8600			8600			8500
Revenue	59900	1420	F	58480	680	F	57800
Expenses:
Cleaning supplies	5600	440	U	5160	60	U	5100
Electricity	1865	37	F	1902	7	U	1895
Maintenance	1090	230	U	860	10	U	850
Wages and salaries	8060	320	U	7740	40	U	7700
Depreciation	8100	0	None	8100	0	None	8100
Rent	2200	200	U	2000	0	None	2000
Administrative expenses	1655	103	F	1758	3	U	1755
Total expenses	28570	1050	U	27520	120	U	27400
Net operating income	31330	370	F	30960	560	F	30400