Question

Lavage Rapide owns and operates a large automatic car wash facility near Montreal. The following table provides estimates concerning the company’s costs:

Fixed Cost per Month Cost per Car Washed
Cleaning supplies $ 0.80
Electricity $ 1,200 $ 0.15
Maintenance $ 0.20
Wages and salaries $ 5,000 $ 0.30
Depreciation $ 6,000
Rent $ 8,000
Administrative expenses $ 4,000 $ 0.10
For example, electricity costs should be $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars in August and to collect an average of $4.90 per car washed.

The actual operating results for August are as follows:

Lavage Rapide
Income Statement
For the Month Ended August 31
Actual cars washed 8,800
Revenue $ 43,080
Expenses:
Cleaning supplies 7,560
Electricity 2,670
Maintenance 2,260
Wages and salaries 8,500
Depreciation 6,000
Rent 8,000
Administrative expenses 4,950
Total expenses 39,940
Net operating income $ 3,140
Required:
Calculate the company's revenue and spending variances for August.

Note: 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.

Fill the activity variances out for the month ended in August 31

Revenue: [blank][U]
Expenses:
Cleaning Supplies: [blank][U]
Electricity: [blank][U]
Maintenance: [blank][U]
Wages and Salaries: [blank][U]
Depreciation: [blank][none]
Rent: [blank][none]
Administrative Expenses: [blank][u]
Total expenses: [blank][U]
Net Operating Income: [blank][U]

Answer 1

To calculate the revenue and spending variances for Lavage Rapide for the month ended August 31, we first need to determine the expected (or budgeted) costs based on the number of cars washed (9,000) and then compare them to the actual results.

1. **Revenue Variance:**
Expected Revenue = Number of Cars Washed × Price per Car Washed
Expected Revenue = 9,000 × $4.90 = $44,100

Actual Revenue = $43,080

Revenue Variance = Actual Revenue - Expected Revenue
Revenue Variance = $43,080 - $44,100 = -$1,020 (U)

2. **Expense Variances:**
We will compute the standard costs for each expense category based on the expected number of cars washed (9,000 cars) and then compare them to the actual expenses.

- **Cleaning Supplies**:
Expected = $0.80 × 9,000 = $7,200
Actual = $7,560
Variance = $7,560 - $7,200 = $360 (U)

- **Electricity**:
Fixed = $1,200
Variable = $0.15 per car × 9,000 = $1,350
Expected = $1,200 + $1,350 = $2,550
Actual = $2,670
Variance = $2,670 - $2,550 = $120 (U)

- **Maintenance**:
Expected = $0.20 × 9,000 = $1,800
Actual = $2,260
Variance = $2,260 - $1,800 = $460 (U)

- **Wages and Salaries**:
Expected = $5,000 + ($0.30 × 9,000) = $5,000 + $2,700 = $7,700
Actual = $8,500
Variance = $8,500 - $7,700 = $800 (U)

- **Depreciation**:
There is no variance since the fixed cost is consistent according to the budget.
Variance = $6,000 - $6,000 = $0 (None)

- **Rent**:
Fixed cost is consistent per the budget.
Variance = $8,000 - $8,000 = $0 (None)

- **Administrative Expenses**:
Expected = $0.10 × 9,000 = $900
Actual = $4,950
Variance = $4,950 - $900 = $4,050 (U)

Now, we calculate the Total Expenses variance:
Total Expenses
Expected Total = Cleaning Supplies + Electricity + Maintenance + Wages and Salaries + Depreciation + Rent + Administrative Expenses
Expected Total = $7,200 + $2,550 + $1,800 + $7,700 + $6,000 + $8,000 + $900 = $34,150
Actual Total = $39,940
Total Expense Variance = $39,940 - $34,150 = $5,790 (U)

Finally, we calculate the Net Operating Income Variance:

Net Operating Income
Expected = Expected Revenue - Expected Total Expenses = $44,100 - $34,150 = $9,950
Actual = $3,140
Variance = $3,140 - $9,950 = -$6,810 (U)

### Summary of Variances:
- Revenue: $1,020 (U)
- Cleaning Supplies: $360 (U)
- Electricity: $120 (U)
- Maintenance: $460 (U)
- Wages and Salaries: $800 (U)
- Depreciation: $0 (None)
- Rent: $0 (None)
- Administrative Expenses: $4,050 (U)
- Total Expenses: $5,790 (U)
- Net Operating Income: $6,810 (U)

### Final filled Variance Table:

| Variance | Amount | Effect |
|---------------------|--------|----------|
| Revenue | 1020 | U |
| Cleaning Supplies | 360 | U |
| Electricity | 120 | U |
| Maintenance | 460 | U |
| Wages and Salaries | 800 | U |
| Depreciation | 0 | None |
| Rent | 0 | None |
| Administrative Expenses | 4050 | U |
| Total Expenses | 5790 | U |
| Net Operating Income | 6810 | U |