Advanced: Computation of variances and the reconciliation of budgeted and actual profits for a taxi firm Tardy Taxis operates a fleet of taxis in a provincial town. In planning its operations for November it estimated that it would carry fare-paying passen¬ gers for 40 000 miles at an average price of £ 1 per mile. However, past experience suggested that the total miles run would amount to 250% of the fare- paid miles. At the beginning of November it employed ten drivers and decided that this number would be adequate for the month ahead. The following cost estimates were available:

The saving in the cost of drivers was due to one driver leaving during the month; she was not replaced until early December.
Requirements:

(a) Prepare a budgeted and actual profit and loss account for November, indicating the total profit variance. (6 marks)

(b) Using a flexible budget approach, construct a set of detailed variances to explain the total profit variance as effectively as possible. Present your analysis in a report to the owner of Tardy Taxis including suggested reasons for the variances. (14 marks)

(c) Outline any further variances you think would improve your explanation, indicating the addi¬ tional information you would require to produce these.

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Employment costs of a driver 1000 per month Fuel costs Variable overhead costs Fixed overhead costs 0.08 per mile run 0.05 per mile run 9000 per month In November revenue of 36 100 was generated by carrying passengers for 38000 miles. The total actual mileage was 105000 miles. Other costs amounted to: Employment costs of drivers Fuel costs Variable overhead costs Fixed overhead costs 9600 8820 5040 9300