Question

Critiquing a Report; Calculating Spending Variances Boyne University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool's monthly planning budget is based on operating 20 vehicles; however, for the month of March the university purchased one additional vehicle. The motor pool furnishes gasoline, oil, and other supplies for its automobiles. A mechanic does routine maintenance and minor repairs. Major repairs are performed at a nearby commercial garage. The following cost control report show actual operating costs for March of the current year compared to the planning budget for March Beyne University Motorol Co Control Report For the Ended Manch31 March ககள் Tales in Tags Calling Ol, mierin part 2.0 Ouderen1 , 4 2.000 500 Salaries & benefits 7.540 750 0 TOTAL $25.040 2 The planning budget was based on the following assumptions: a. S0.15 per mile for gasoline b. $0.04 per mile for oil, minor repairs and parts. c. $75 per automobile per month for outside repairs. d. $100 per automobile per month for insurance. e. $7,540 per month for salaries & benefits. f. $250 per automobile per month for depreciation. The supervisor is unhappy with the report, claiming it paints an unfair picture of the motor pool's performance. Required: 1. Calculate the spending variances for March (which means you first need to calculate the Flexible Budget for March). 2. What are the problems with the original cost control report? How do your calculations in part 1 above overcome these deficiencies? 3.READ the attached totally independent situation and, as a group, conclude what Tom Kemper should do.

Answer 1

Requirement 1: Compute the spending variances for the month of March as follows

BUMP
Spending Variances
For the Month Ended March 31
Particulars	Flexible Budget	Actual Results	Spending Variance	Favorable / Unfavorable
Gasoline (63,000 × $0.15)	$9,450	$9,350	$100	Favorable
Oil, minor repairs and parts   (63,000 × $0.04)	$2,520	$2,360	$160	Favorable
Outside repairs (21 vehicles × $75 per vehicle)	$1,575	$1,420	$155	Favorable
Vehicle Insurance (21 vehicles × $100 per vehicle)	$2,100	$2,120	$20	Unfavorable
Salaries and benefits	$7,540	$7,540	$0
Vehicle Depreciation (21 vehicles × $250 per vehicle)	$5,250	$5,250	$0
Total	$28,435	$28,040	$395	Favorable

Requirement 2:

The spending variances in the original cost control report are computed based on the static planning budget which is a suitable for planning purpose only and is not useful in evaluating the motor pool cost efficiencies because there is a variation in planned number of miles and actual number of miles driven and number of vehicles. The above performance report is more realistic because the costs are computed using the actual miles driven and actual number of vehicles used during the month of March.