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 £1000 per month
Fuel costs £0.08 per mile run
Variable overhead costs £0.05 per mile run
Fixed overhead costs £9000 per mo
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.
(a) Prepare a budgeted and actual profit and loss account for November, indicating the total profit variance.
(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.
(c) Outline any further variances you think would improve your explanation, indicating the additional information you would require to produce these.