Lavage Rapide is a Canadian company that owns and operates a large automatic car
ID: 2509080 • Letter: L
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:
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 $6.20 per car washed.
Complete the flexible budget performance report that shows the company’s activity variances and revenue and spending 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.)
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:
Explanation / Answer
Solution:
Revenue and spending variance is the difference of Actual Result and Flexible Budget.
Activity Variance is the difference of Flexible Budget and Planned Budget.
So, we need to prepare the Planned Budget and Flexible Budget
Planned Budget is the original budget prepared by the company at the beginning of the operating by estimating the cost and revenue for the priod.
Lavage Rapide
Planning Budget
For the Month Ended August 31
Number of Cars Washed
8,300 Cars
Revenue (8300 Cars * $6.20)
$51,460
Expenses:
Cleaning Supplies (0.7*8300)
$5,810
Electricity (1100 + 0.07*8300)
$1,681
Maintenance (8300*0.15)
1245
Wages and salaries (4900 + 8300*0.3)
7390
Depreciation
8100
Rent
1900
Administrative expenses (1800 + 8300*.02)
1966
Total expense
$28,092
Net operating income
$23,368
Flexible Budget is the budget prepared by the company on the basis of actual achieved activity but at standard cost in order to compare the budget with actual.
Lavage Rapide
Flexible Budget
For the Month Ended August 31
Number of Cars Washed (Actual)
8400 Cars
Revenue (8400 Cars * $6.20)
$52,080
Expenses:
Cleaning Supplies (0.7*8400)
$5,880
Electricity (1100 + 0.07*8400)
$1,688
Maintenance (8400*0.15)
1260
Wages and salaries (4900 + 8400*0.3)
7420
Depreciation
8100
Rent
1900
Administrative expenses (1800 + 8400*.02)
1968
Total expense
$28,216
Net operating income
$23,864
Lavage Rapide
Flexible Budget Performance Report
Actual Result
Revenue and Spending Variance
Flexible Budget
Activity Variance
Planned Budget
Number of Cars Washed
8400 Cars
-
8400 Cars
100
U
8,300 Cars
Revenue
$53,560
$1,480
F
$52,080
$620
F
$51,460
Expenses:
Cleaning Supplies
$6,310
$430
U
$5,880
$70
U
$5,810
Electricity
$1,651
$37
F
$1,688
$7
U
$1,681
Maintenance
$1,485
$225
U
$1,260
$15
U
$1,245
Wages and salaries
$7,750
$330
U
$7,420
$30
U
$7,390
Depreciation
$8,100
$0
NONE
$8,100
$0
NONE
$8,100
Rent
$2,100
$200
U
$1,900
$0
NONE
$1,900
Administrative expenses
$1,866
$102
F
$1,968
$2
U
$1,966
Total expense
$29,262
$1,046
U
$28,216
$124
U
$28,092
Net operating income
$24,298
$434
F
$23,864
$496
F
$23,368
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Lavage Rapide
Planning Budget
For the Month Ended August 31
Number of Cars Washed
8,300 Cars
Revenue (8300 Cars * $6.20)
$51,460
Expenses:
Cleaning Supplies (0.7*8300)
$5,810
Electricity (1100 + 0.07*8300)
$1,681
Maintenance (8300*0.15)
1245
Wages and salaries (4900 + 8300*0.3)
7390
Depreciation
8100
Rent
1900
Administrative expenses (1800 + 8300*.02)
1966
Total expense
$28,092
Net operating income
$23,368
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