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 Cost per
per Month 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 are $1,200 per month plus $0.15 per car washed. The company expected to wash 9,000 cars in August and to collect an average of $4.90 per car washed.
The actual operating results for August appear below.
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 expense 39,940
Net operating income $3,140
Required:
Compute the company's 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.)

Answer 1

Answer and Explanation:

The computation of the company's revenue and spending variances for August is shown below:-

                                       Lavage Rapide

                           Revenue and Spending Variances

                               For the Month Ended August

Particulars               Actual   Revenue and Spending    Flexible Budget

                                  Results              Variances

Actual Cars

Washed                    8,800    

Revenue                  $43,080           $40  U                      $43,120

Less:

Expenses    

Cleaning Supplies  $7,560             $520  U                     $7,040

Electricity                 $2,670             $150 U                       $2,520

Maintenance           $2,260             $500 U                       $1,760

Wages and

Salaries                   $8,500              $860 U                     $7,640

Depreciation          $6,000               0                               $6,000

Rent                        $8,000               0                               $8,000

Administrative

Expenses               $4,950              $70 U                       $4,880

Total Expense        $39,940           $2,100 U                  $37,840

Net Operating

Income                   $3,140               $2,140 U                   $5,280

We simply deduct all expenses from the revenue generated so that the net operating income could arrive