Question

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

Cleaning supplies $ 0.80 (cost per car washed)
Electricity fixed cost per month:$ 1,200 cost per car washed: $ 0.15
Maintenance cost per car washed: $ 0.20
Wages and salaries fixed cost per month: $ 5,000 cost per car washed: $ 0.30
Depreciation fixed cost per month:$ 6,000
Rent fixed cost per month:$ 8,000
Administrative expenses fixed cost per month: $ 4,000 cost per car washed: $ 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 company's revenue and spending variances for August, we first need to determine the expected (budgeted) amounts based on the actual number of cars washed (8,800) and compare them to the actual results.

### Step 1: Calculate Expected Revenue
The revenue per car washed is $4.90.
- Expected Revenue = Actual Cars Washed × Revenue per Car
- Expected Revenue = 8,800 × $4.90 = $43,120

### Step 2: Calculate Revenue Variance
- Actual Revenue = $43,080
- Revenue Variance = Actual Revenue - Expected Revenue
- Revenue Variance = $43,080 - $43,120 = **-$40**

Since the revenue variance is negative, it’s unfavorable.
- Revenue Variance: **$40 [U]**

### Step 3: Calculate Expected Expenses
Now we calculate the expected expenses for each category based on the number of cars washed (8,800). The fixed costs remain constant, while variable costs are calculated based on the number of cars washed.

**Cleaning Supplies:**
- Variable Cost per Car Wash = $0.80
- Expected Cleaning Supplies = Variable Cost × Actual Cars Washed
- Expected Cleaning Supplies = $0.80 × 8,800 = $7,040

**Electricity:**
- Fixed Cost = $1,200
- Variable Cost per Car = $0.15
- Expected Electricity = Fixed Cost + (Variable Cost × Actual Cars Washed)
- Expected Electricity = $1,200 + ($0.15 × 8,800) = $1,200 + $1,320 = $2,520

**Maintenance:**
- Variable Cost per Car Wash = $0.20
- Expected Maintenance = Variable Cost × Actual Cars Washed
- Expected Maintenance = $0.20 × 8,800 = $1,760

**Wages and Salaries:**
- Fixed Cost = $5,000
- Variable Cost per Car = $0.30
- Expected Wages and Salaries = Fixed Cost + (Variable Cost × Actual Cars Washed)
- Expected Wages and Salaries = $5,000 + ($0.30 × 8,800) = $5,000 + $2,640 = $7,640

**Depreciation:**
- Fixed Cost = $6,000
- Expected Depreciation = $6,000 (fixed)

**Rent:**
- Fixed Cost = $8,000
- Expected Rent = $8,000 (fixed)

**Administrative Expenses:**
- Fixed Cost = $4,000
- Variable Cost per Car = $0.10
- Expected Administrative Expenses = Fixed Cost + (Variable Cost × Actual Cars Washed)
- Expected Administrative Expenses = $4,000 + ($0.10 × 8,800) = $4,000 + $880 = $4,880

### Step 4: Calculate Total Expected Expenses
Now, let's tally up the expected expenses:
- Expected Total Expenses =
- Cleaning Supplies: $7,040
- Electricity: $2,520
- Maintenance: $1,760
- Wages and Salaries: $7,640
- Depreciation: $6,000
- Rent: $8,000
- Administrative Expenses: $4,880
- Expected Total Expenses = $7,040 + $2,520 + $1,760 + $7,640 + $6,000 + $8,000 + $4,880 = $37,840

### Step 5: Calculate Total Expenses Variance
- Actual Total Expenses = $39,940
- Expenses Variance = Actual Expenses - Expected Expenses
- Expenses Variance = $39,940 - $37,840 = **$2,100**

This variance is unfavorable.
- Total Expenses Variance: **$2,100 [U]**

### Step 6: Calculate Individual Spending Variances
Now let's calculate the spending variances for each category:

**Cleaning Supplies:**
- Actual = $7,560
- Expected = $7,040
- Variance = $7,560 - $7,040 = **$520 [U]**

**Electricity:**
- Actual = $2,670
- Expected = $2,520
- Variance = $2,670 - $2,520 = **$150 [U]**

**Maintenance:**
- Actual = $2,260
- Expected = $1,760
- Variance = $2,260 - $1,760 = **$500 [U]**

**Wages and Salaries:**
- Actual = $8,500
- Expected = $7,640
- Variance = $8,500 - $7,640 = **$860 [U]**

**Depreciation:**
- Actual = $6,000
- Expected = $6,000
- Variance = $6,000 - $6,000 = **$0 [None]**

**Rent:**
- Actual = $8,000
- Expected = $8,000
- Variance = $8,000 - $8,000 = **$0 [None]**

**Administrative Expenses:**
- Actual = $4,950
- Expected = $4,880
- Variance = $4,950 - $4,880 = **$70 [U]**

### Summary of Variances
- Revenue: **$40 [U]**
- Expenses:
- Cleaning Supplies: **$520 [U]**
- Electricity: **$150 [U]**
- Maintenance: **$500 [U]**
- Wages and Salaries: **$860 [U]**
- Depreciation: **$0 [None]**
- Rent: **$0 [None]**
- Administrative Expenses: **$70 [U]**
- Total Expenses: **$2,100 [U]**
- Net Operating Income: Since total unfavorable expenses surpassed revenue, total net operating income will also be unfavorable.

### Final Output
- Revenue: **40 [U]**
- Expenses:
- Cleaning Supplies: **520 [U]**
- Electricity: **150 [U]**
- Maintenance: **500 [U]**
- Wages and Salaries: **860 [U]**
- Depreciation: **0 [None]**
- Rent: **0 [None]**
- Administrative Expenses: **70 [U]**
- Total Expenses: **2,100 [U]**
- Net Operating Income: **2,100 [U]**

This outlines the variances for January succinctly.