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	$	1,100		$	0.07
Maintenance				$	0.20
Wages and salaries	$	4,500		$	0.20
Depreciation	$	8,400
Rent	$	2,200
Administrative expenses	$	1,300		$	0.03

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expects to wash 8,300 cars in August and to collect an average of $6.10 per car washed. The company actually washed 8,400 cars in August.

Required:

Calculate the company's activity variances for August

	Lavage Rapide Activity Variances For the Month Ended August 31 Revenue Expenses: Cleaning supplies Electricity Maintenance Wages and salaries Depreciation Rent Administrative expenses Total expense Net operating income

Answer 1

Answer

• Activity Variance = Difference between Planned Budget and Flexible Budget

	Activity variance
Revenues	$                610.00	F
Expenses:
Cleaning Supplies	$                  60.00	U
Electricity	$                     7.00	U
Maintenance	$                  20.00	U
Wages & Salaries	$                  20.00	U
Depreciation	$                         -	None
Rent	$                         -	None
Administrative expense	$                     3.00	U
Total Expenses	$                110.00	U
Net Operating Income	$                500.00	F

--Working

		WORKING COLUMNS					Flexible Budget	Planning Static Budget
Cars washed							8,400	8,300
Revenues				$      6.10			$             51,240.00	$          50,630.00
Expenses:
Cleaning Supplies	(	$                      -	)	$      0.60	x 8400 or 8300		$               5,040.00	$             4,980.00
Electricity	(	$         1,100.00	)	$      0.07	x 8400 or 8300	)	$               1,688.00	$             1,681.00
Maintenance	(	$                      -	+	$      0.20	x 8400 or 8300	)	$               1,680.00	$             1,660.00
Wages & Salaries	(	$         4,500.00	+	$      0.20	x 8400 or 8300	)	$               6,180.00	$             6,160.00
Depreciation	(	$         8,400.00	+	$           -	x 8400 or 8300		$               8,400.00	$             8,400.00
Rent	(	$         2,200.00	)	$           -	x 8400 or 8300		$               2,200.00	$             2,200.00
Administrative expense	(	$         1,300.00	+	$      0.03	x 8400 or 8300	)	$               1,552.00	$             1,549.00
Total Expenses		$      17,500.00		$      1.10			$             26,740.00	$          26,630.00
Net Operating Income							$             24,500.00	$          24,000.00