Question
The Rescuers, Ltd. operates a fleet of trucks which locate and/or respond to calls from disabled cars or accidents. Repairs are down at the location
The Rescuers, Ltd. operates a fleet of trucks which locate and/or respond to calls from disabled cars or accidents. Repairs are down at the location of the problem (9-% of which are on the QEW). If damage is too severe, or the problem is such that it cannot be taken care of immediately, the drivers tow the car to a repair facility chosen by the vehicle owner.
The drivers of the trucks are considered independent contractors and are paid a set amount for each service incident that us completed on site (and nothing is they tow the vehicle, although they often receive tips from the vehicle owners and some repair ship offer "kickbacks" to tow trucks that bring in business). The firm owns the trucks, and pays for all repairs and maintenance, including gas. The firm budgets carefully for each month. Customers are charged a flat fee if towing is necessary, and various fees is raids are conducted on site. Gas and repairs are budgeted on the basis of kilometres driven. The static budget variances for March, 2018 were as follows:
Budget | Actual | Variance | |
Service calls | 18,000 | 18,240 | 240F |
Completed onsite | 13,500 | 12,979 | 521U |
Towed | 4,500 | 12,979 | 761U |
Kilometers driven | 234,000 | 269,800 | 35,800U |
Revenue (from repairs) | $11,475,000 | $10,386,200 | $1,088,800U |
Revenue (from towing) | 675,000 | 789,150 | 91,800F |
Variable costs: | |||
Gas | 51,480 | 67,400 | 15,920 |
Parts | 1,147,500 | 920,600 | 226,900F |
Payments to drivers | 2,430,000 | 2,336,220 | 66,960F |
Maintenance for trucks | 538,200 | 493,400 | 44,800F |
Fixed costs | |||
Salaires | 70,000 | 75,000 | 5,000U |
Amortization on trucks | 950,000 | 950,000 | - |
1. Prepare a flexible budget analysis for The Rescuers for the month of February. Be sure to include the activities levels
2. Examine the solution to the flexible budget. Do you find any indication of a problem that the firms management should address? Be specific about what may be wrong. Note: there could easily be more than one problem.
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