Lavage Rapide is a Canadian company that owns and operates a large automatic car

Question

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility near Montreal. The following table provides data concerning the company’s costs: Fixed Cost per Month Cost per Car Washed Cleaning supplies $ 0.70 Electricity $ 1,300 $ 0.05 Maintenance $ 0.15 Wages and salaries $ 4,100 $ 0.20 Depreciation $ 8,000 Rent $ 2,100 Administrative expenses $ 1,500 $ 0.01 For example, electricity costs are $1,300 per month plus $0.05 per car washed. The company expected to wash 8,200 cars in August and to collect an average of $6.90 per car washed. The company actually washed 8,300 cars in August. Required: Compute the company's 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.)

Explanation / Answer

Solution

Activity Variance = (Budgeted Sales – Actual Sales) x Budgeted Contribution Margin Per Unit

Budgeted Cars to Wash = 8,200 Cars

Actual Cars Washed = 8,300 Cars

Budgeted Contribution Margin Per Unit = $5.79

Collection Per Car Washed

$6.90

Less: Variable Cost per car washed

($1.11)

Contribution Margin pe car washed

$5.79

Activity Variance = (Budgeted Sales – Actual Sales) x Budgeted Contribution Margin Per Unit

= (8,200 – 8,300) x $5.79 = $579 U

Collection Per Car Washed

$6.90

Less: Variable Cost per car washed

($1.11)

Contribution Margin pe car washed

$5.79

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