The University of California offers an extensive continuing education program throughout many cities in California. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 25 vehicles unit February of 2021, when an additional vehicle was added to the pool to increase the total to 26 vehicles. The motor pool provides 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. A supervisor manages the operations.

Each year the supervisor prepares an operating budget, informing university management of the funds needed to operate the pool. Depreciation on the automobiles is recorded in the budget in order to determine the cost per kilometer.

Table A, below presents the annual budget approved by the university. The actual costs for March, 2021 are compared with 1/12 (one month) of the annual budget.

Table A

Budget Report for 2021

Expenses	Annual Budget	One-month Budget	March Actual	Over/ (Under)
Gasoline	$82,500	$6,875	$8,200	$1,325
Oil, minor repairs, parts and supplies	30,000	2,500	2,540	40
Outside repairs	2,700	225	50	(175)
Insurance	4,800	400	416	16
Salaries & benefits	21,600	1,800	1,800	-
Depreciation	22,800	1,900	1,976	76
Total Costs	$164,400	$13,700	$14,982	$1,282
Total kilometres driven	1,500,000	125,000	140,000
Cost per kilometre	$0.1096	$0.1096	$0.1070
Number of automobiles	25	25	26

The annual budget was constructed based on the following assumptions:

1. 25 automobiles in the pool
2. 60,000 kilometers per year per automobile
3. 8 kilometers per litre of gas for each automobile
4. $0.44 per litre of gas
5. $0.02 per kilometer for oil, minor repairs, parts, and supplies
6. $108 per automobile in outside repairs

The supervisor is unhappy with the monthly report comparing budget and actual costs for March. She complains that the report presents her performance unfairly. Her previous employer used flexible budgeting to compare actual costs with budgeted amounts.

Required:

1. Employing flexible budget techniques, prepare a report that shows budgeted amounts, actual costs, and monthly variation for March.

2. Explain the basis of your budget figure for outside repairs.