The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 25 vehicles until February of this year, when an additional automobile was acquired. The motor pool furnishes gasoline, oil, and other supplies for the cars and hires one mechanic who does routine maintenance and minor repairs. Major repairs are done at a nearby commercial garage. A supervisor manages the operations.
Each year the supervisor prepares an operating budget, informing university management of the funds needed to operate the pool. Amortization on the automobiles is recorded in the budget in order to determine the cost per kilometre.
The schedule below presents the annual budget approved by the university.
The actual costs for March are compared with one-twelfth of the annual budget.

The supervisor is unhappy with the monthly report comparing budget and
actual costs for March; he claims it presents his performance unfairly. His previous
employer used flexible budgeting to compare actual costs with budgeted amounts.
1. Employing flexible-budgeting techniques, prepare a report that shows
budgeted amounts, actual costs, and monthly variation for March.
2. Briefly explain the basis of your budget figure for outside repairs.

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University Motor Pool ANNUAL ONE-MONTH Budget Report for BUDGET BUDGET MARCH ACTUAL OVER (UNDER) March Gasoline 75,000 6,250 7,500 1,250 Oil, minor repairs, parts, and supplies 15,000 1,250 1,300 50 Outside repairs 2,700 225 50 (175) Insurance 4,800 400 416 16 Salaries and benefits 21,600 1,800 1,800 Amortization 22,800 1,900 1,976 76 141,900 11,825 13,042 1,217 Total kilometres 1,500,000 125,000 140,000 Cost per kilometre 0.0946 0.0946 0.0932 Number of automobiles 25 25 26 The annual budget was constructed upon the following assumptions: 1. 25 automobiles in the pool 2. 60,000 kilometres per year per automobile 3. 8 kilometres per litre per automobile 4. 0.40 per litre of gas 5. 0.01 per kilometre for oil, minor repairs, parts, and supplies 6. 108 per automobile in outside repairs