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 passengers 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 per cent 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:

Employment costs of a driver 1 000 per month

Fuel costs 0.08 per mile run

Variable overhead costs 0.05 per mile run

Fixed overhead costs 9000 per month

In November revenue of 36 100 was generated by carrying

passengers for 38 000 miles. The total actual mileage was

105 000 miles. Other costs amounted to:

Employment costs of drivers 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 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 additional information you

would require to produce these. (5 marks)