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				$	0.60
Electricity	$	1,300		$	0.09
Maintenance				$	0.10
Wages and salaries	$	4,200		$	0.20
Depreciation	$	8,100
Rent	$	1,800
Administrative expenses	$	1,600		$	0.05

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 $6.80 per car washed.

The actual operating results for August appear below.

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed		8,400
Revenue	$	58,540
Expenses:
Cleaning supplies		5,480
Electricity		2,017
Maintenance		1,070
Wages and salaries		6,220
Depreciation		8,100
Rent		2,000
Administrative expenses		1,915
Total expense		26,802
Net operating income	$	31,738

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August.

Answer 1

	Actual	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Cars washed	8400			8400			8300
Revenue	58540	1420	F	57120	680	F	56440
Expenses:
Cleaning supplies	5480	440	U	5040	60	U	4980
Electricity	2017	39	F	2056	9	U	2047
Maintenance	1070	230	U	840	10	U	830
Wages and salaries	6220	340	U	5880	20	U	5860
Depreciation	8100	0	None	8100	0	None	8100
Rent	2000	200	U	1800	0	None	1800
Administrative expenses	1915	105	F	2020	5	U	2015
Total expenses	26802	1066	U	25736	104	U	25632
Net operating income	31738	354	F	31384	576	F	30808