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		$	0.09
Maintenance				$	0.15
Wages and salaries	$	4,900		$	0.40
Depreciation	$	8,400
Rent	$	1,900
Administrative expenses	$	1,700		$	0.04

For example, electricity costs are $1,300 per month plus $0.09 per car washed. The company expects to wash 8,300 cars in August and to collect an average of $6.90 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,400
Revenue	$	59,370
Expenses:
Cleaning supplies		5,480
Electricity		2,017
Maintenance		1,485
Wages and salaries		8,580
Depreciation		8,400
Rent		2,100
Administrative expenses		1,932
Total expense		29,994
Net operating income	$	29,376

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	8400			8400			8300
Revenue	59370	1410	F	57960	690	F	57270
Expenses:
Cleaning supplies	5480	440	U	5040	60	U	4980
Electricity	2017	39	F	2056	9	U	2047
Maintenance	1485	225	U	1260	15	U	1245
Wages and salaries	8580	320	U	8260	40	U	8220
Depreciation	8400	0	None	8400	0	None	8400
Rent	2100	200	U	1900	0	None	1900
Administrative expenses	1932	104	F	2036	4	U	2032
Total expenses	29994	1042	U	28952	128	U	28824
Net operating income	29376	368	F	29008	562	F	28446