7.19 The University of Boyne offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and also to save costs, the university operates a motor pool. Until February the motor pool operated with 20 vehicles. However, an additional automobile was acquired in February this year, increasing the total to 21 vehicles. 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. Each year a supervisor prepares an operating budget for the motor pool. The budget informs university management of the funds needed to operate the pool. Depreciation on the automobiles is recorded in the budget in order to determine the costs per mile. The schedule below presents the annual budget approved by the university. The actual costs for March are compared to one-twelfth of the annual budget. h26 UNIVERSITY MOTOR POOL Budget Report For March 19A Annual One-Month Budget Budget $ 59,280 $ 4,940 Variance (U) or (F) $800 (U) Gasoline Oil, minor repairs, parts, and supplies Outside repairs Insurance Salaries and benefits Depreciation 3,600 2,700 6,000 30,000 26,400 $127,980 300 225 500 2,500 2,200 $10,665 March Actual $ 5,740 380 50 525 2.500 2,310 $11,505 80 (U) 175 (F) 25 (U) 110 (U) $840 (U) Total miles 600,000 50,000 63.000 Cost per mile $0.2133 $0.2133 $0.1826 Number of automobiles 20 20 21 The annual budget was constructed upon the following assumptions: (a) 20 automobiles in the pool (e) $0.006 per mile for oil, minor repairs, (b) 30,000 miles per year per automobile parts, and supplies (c) 15 miles per gallon per automobile ($135 per automobile in outside repairs (d) $1.30 per gallon of gas The supervisor is unhappy with the monthly report comparing budget and actual costs for March. He claims it presents unfairly his performance for March. His previous employer used flexible budgeting to compare actual costs to budgeted amounts. 1. Employing flexible budgeting techniques, prepare a report which shows budgeted amounts, actual costs, and monthly variation for March. 2. Explain briefly the basis of your budget figure for outside repairs