Spending Variances Analysis

Ultratech Company's headquarters are a "campus" in the outskirts of San Francisco, California. For the convenience of its employees and to help preserve the environment, the company operates a motor pool of buses running between points in San Francisco and the company's Campus. The motor pool operated with 20 vehicles until February, when an additional bus was acquired and put in service. The motor pool furnishes gasoline, oil, and other supplies for its buses. A mechanic does routine maintenance and minor repairs. Major repairs are performed at a nearby commercial garage. Each year, the supervisor of the motor pool prepares an annual budget, which is reviewed by the company's management and approved after suitable modifications. The following cost control report shows actual operating costs for March of the current year compared to one- twelfth of the annual budget.

Ultratech Co. Motor Pool

Cost Control Report

For the Month Ended March 31

	Annual Budget	Monthly budget (1/12 of annual budget)	March Actual	(Over) / Under Budget
Miles	600,000	50,000	58,000
Buses	20	20	21
Gasoline	$96,000	$8,000	$8,970	$ (970)
Oil, Parts, Minor Repairs	30,000	2,500	2,840	(340)
Outside Repairs	9,600	800	980	(180)
Insurance	18,000	1,500	1,625	(125)
Salaries and Benefits	103,320	8,610	8,610	0
Vehicle Depreciation	48,000	4,000	4,200	(200)
Total	$304,920	$25,410	$27,225	$ (1,815)

The annual budget was based on the following assumptions:

a. $ 0.16 per mile for gasoline.

b. $ 0.05 per mile for oil, minor repairs, and parts.

c. $ 480 per bus per year for outside repairs.

d. $ 900 per bus per year for insurance.

e. $ 8,610 per month for salaries and benefits.

f. $ 2,400 per bus per year for depreciation.

The supervisor of the motor pool, Ralph Kramden, is unhappy with the report, claiming it paints an unfair picture of the motor pool's performance. He has asked for your help preparing for a meeting with management in which he believes his performance will be criticized as a result of the variances shown in the Cost Control Report.

Required:

Put together memo to Ralph Kramden, including the following:

1. Put together new performance report for March based on a flexible budget that shows spending variances.

2. Analyze the motor pool's performance based on your flexible budget.

3. Explain the deficiencies in the original cost control report and how the report that you prepared based on a flexible budget overcomes these deficiencies.