Question

Last month, the budgeted level of activity was 1,090 cars washed and the actual level of activity was 1,080 cars washed. The cost formula for the washing expenses is $3.30 per car washed plus $18,500 per month.

Fixed cost per month Cost per car washed
Cleaning supplies $0.70
Electricity $1,300 $0.08
Maintenance $0.15
wages and salaries $4,900 $0.20
Depreciation $8,400
Rent $1,900
Administrative expenses $1,600 $0.05

For example. electricity costs are $1,300 per month plus $0.08 per car washed. The company expects to wash 8,000 cars in August and to collect an average Of $6.60 per car washed.
The actual operating results for August appear below.


Lavage Rapide Income Statement For the Month Ended August 31

Actual car washed 8100
Revenue 54,900

Expenses:
Cleaning supplies 6,100
Electricity 1910
Maintenance 1,440
Wages and salaries 6860
Depreciation 8,400
Rent 2100
Administrative expenses 1,900
Total expense 28170
Net operating income 26,190


Required:
Prepare a flexible budget performance report that shows the company's revenue and spending variances and activity variances for August.

Answer 1

Answer:

Flexible Budget Performance Report for August:

                                          Flexible       Actual                    Variances

                                           Budget       Budget     Spending  Activity  Total

Activity levels                         8,100          8,100        

Revenue                           $53,460    $54,900                                  $1,440

Cleaning supplies              $5,670       $6,100                          (430)      

Electricity                             $1,948           1,910                             38

Maintenance                        $1,215         1,440                         (225)

Wages and salaries           $6,520        6,860                         (340)

Administrative expenses  $2,005         1,900                           105

Depreciation                      $8,400         8,400                              0

Rent                                    $1,900          2,100       ($200)

Total expenses               $27,658    $28,170        ($200)    ($852) (1,052)

Net operating income    $25,802   $26,190                                     $388

Explanation:

a) Data and Calculations:

                                        Fixed cost      Cost per

                                       per month    car washed

Cleaning supplies                                     $0.70

Electricity                             $1,300          $0.08

Maintenance                                             $0.15

Wages and salaries           $4,900          $0.20

Depreciation                      $8,400

Rent                                    $1,900

Administrative expenses  $1,600           $0.05

Total costs                        $18,100            $1.18

Flexible costs:

Cleaning supplies                                     $0.70  * 8,100 =   $5,670

Electricity                             $1,300          $0.08  * 8,100 =    $1,948

Maintenance                                             $0.15   * 8,100 =     $1,215

Wages and salaries           $4,900          $0.20   * 8,100 =   $6,520

Administrative expenses  $1,600           $0.05   * 8,100 =  $2,005