Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s expected costs:
| Fixed Cost per Month | Cost per Car Washed | |||||
| Cleaning supplies | $ | 0.70 | ||||
| Electricity | $ | 1,800 | 0.10 | |||
| Maintenance | 0.30 | |||||
| Wages and salaries | 5,100 | 0.40 | ||||
| Depreciation | 8,700 | |||||
| Rent | 2,500 | |||||
| Administrative expenses | 2,240 | 0.09 | ||||
For example, electricity costs are $1,800 per month plus $0.10 per car washed. The company expects to wash 8,400 cars in October and to collect an average of $6.30 per car washed.
Auto Lavage’s actual level of activity was 8,500 cars. The actual revenues and expenses for October are given below:
| Auto Lavage Income Statement For the Month Ended October 31 | ||
| Actual cars washed | 8,500 | |
| Sales | 56,300 | |
| Variable expenses: | ||
| Cleaning supplies | 6,475 | |
| Electricity | 910 | |
| Maintenance | 2,075 | |
| Wages and salaries | 3,802 | |
| Administrative | 856 | |
| Fixed expenses: | ||
| Electricity | 1,890 | |
| Wages and salaries | 5,100 | |
| Depreciation | 8,700 | |
| Rent | 2,500 | |
| Administrative | 2,145 | |
| Total expense | 34,453 | |
| Net operating income | 21,847 | |
Required:
1. Prepare a flexible budget performance report for October. (Indicate the effect of each variance by selecting “F” for favourable, “U” for unfavourable, and “None” for no effect (i.e., zero variance).)
2. Prepare a comprehensive performance report for October. Assume that the static budget for October was based on an activity level of 8,400 cars. (Indicate the effect of each variance by selecting “F” for favourable, “U” for unfavourable, and “None” for no effect (i.e., zero variance).)
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Solution – Auto Lavage is a Canadian company
| AUTO LAVAGE INC. | |||||
| Flexible Budget Performance Report | |||||
| For the Month Ended October 31 | |||||
| Cost Formula (per car) | Actual | Flexible Budget | Flexible Budget Variance | ||
| Sales | $6.30 | $56,300 | $53,550 | $2,750 | F |
| Variable Expenses: | |||||
| Cleaning supplies | 0.70 | 6,475 | 5,950 | (525) | U |
| Electricity | 0.10 | 910 | 850 | (60) | U |
| ##### | 0.30 | ##### | 2,550 | 475 | F |
| ##### | ##### | 3,802 | ##### | ##### | U |
| ##### | 0.09 | 856 | ##### | (91) | U |
| Total variable expenses | ##### | ##### | ##### | (603) | U |
| Contribution margin | ##### | ##### | ##### | ##### | F |
| Fixed expenses: | |||||
| Electricity | 1,890 | ##### | ##### | U | |
| Wages and salaries | ##### | 5,100 | None | ||
| Depreciation | ##### | ##### | None | ||
| Rent | 2,500 | ##### | None | ||
| Administrative | 2,145 | ##### | ##### | F | |
| Total fixed expenses | ##### | 20,340 | 5 | F | |
| Operating income | ##### | ##### | ##### | F | |
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