Tardy Taxi operates a fleet of taxis in a provincial town. In planning its operation for January, it estimated that it would carry fare-paying passengers for 40000 miles at an average price of 1 per mile. However, experience suggested that the total miles run would amount to 250 percent of the fare paid miles. At the beginning of January, it employed 10 drivers and decided that this number would be adequate for the month ahead.

The following cost estimates were available

Employee costs of a driver	1000 per month
Fuel costs	0.08 per month
Variable overhead costs	0.05 per mile run
Fixed overhead costs	9000 per month

At end of January revenue of 36100 was generated by carrying passengers for 38000 miles. The total actual mileage was 105000 miles. Other cost amounted to:

Employment costs of a driver	9600
Fuel costs	8820
Variable overhead costs	5040
Fixed overhead costs	9300

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

Required:

1. Prepare a budget and actual profit and loss account for January, indicating the total profit variance
2. 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.
3. Outline any further variance you think would improve your explanation, indicating the additional information you would require producing these.