Question

uppiles and other variable overhead. i llas asked Dr. Narr Skea Dr. Narr to explain the variances. Provide possible The NUP explanations. Flexible Budgeting 8-47 Flexib, For the convenience motor pool operated wit while. The motor pool fu ence of its reporters and star based in London, CNN operates a motor pool. The d with 25 vehicles until February of this vear, when it acquired an additional auto- pool furnishes petrol (gasoline), oil, and other supplies for the cars and hires one does routine maintenance and minor repairs. Major repairs are done at a nearby com- ge. A supervisor manages the operations. or the supervisor prepares an operating budget, informing CNN management of the funds e the pool. Depreciation on the automobiles is recorded in the budget in order to mechanic who do mercial garage. As Each year the supervis needed to operate the armine the cost per mile. The following schedule no schedule presents the annual budget approved by the news division. The actual March are compared with one-twelfth of the cause costs for Marcha CNN London Motor Pool Budget Report for March 20X1 Annual One-Month Budget Budget £ 82,500 £ 6,875 March Over (Under) £1,325 2,500 40 Petrol (gasoline) Oil, minor repairs, parts, and supplies Outside repairs Insurance Salaries and benefits Depreciation 225 (175) 30,000 2,700 4,800 21,600 22,800 £164,400 1,500,000 £.1096 Actual £ 8,200 2,540 50 416 1,800 1,976 £14,982 140,000 £ .1070 400 1,800 1,900 £13,700 125,000 £ .1096 25 Total costs Total kilometers Cost per kilometer Number of automobiles £1,282 525 26 annual budget was constructed based on the following assumptions: 3.8 kilometers per 1. 25 automobiles in the pool 000 kilometers per year per automobile lometers per liter of petrol for each automobile 4. £.44 per liter of petrol er kilometer for oil, minor repairs, parts, and supplies 108 per automobile in outside repairs 5. £.02 per kilomete 6. £108 per auto

Answer 1

Requirement 1: Prepare the monthly budget report as follows

CNNL Motor Pool
Monthly Budget Report
For the month of March 20X1
Particulars	Actual	Budgeted	Under / (Over)
Gasoline	£8,200	£7,700	(£500)
Oil, minor repairs, Parts and supplies,	£2,540	£2,800	£260
Outside repairs	£50	£234	£184
Insurance	£416	£416	£0
Salaries and benefits	£1,800	£1,800	£0
Depreciation	£1,976	£1,976	£0
	£14,982	£14,926	(£56)
÷ Actual kilometers	140,000	140,000
Cost per kilometer	£0.1070	£0.1066	(£0.0004)

Notes:

Total actual kilometers in March	140,000
÷ Mileage per liter of petrol	8
Total kilometers	17,500
× Gasoline cost per kilometer	£0.44
Total budgeted cost of gasoline	£7,700
Budgeted monthly oil, minor repairs, parts and supplies cost
Total actual kilometers in March	140,000
× Oil, minor repairs, parts and supplies cost per kilometer	£0.02
Total budgeted cost	£2,800
Budgeted monthly outside repair cost
Number of automobiles	26
× Annual outside repair cost per automobile	£108
Total budgeted annual cost	£2,808
÷ Number of months	12
Budgeted monthly cost	£234
Budgeted monthly insurance cost
Budgeted annual insurance cost	£4,800
÷ Number of automobiles in the pool	25
Budgeted annual insurance cost per auto	£192
× Actual number of Autos	26
Total budgeted annual insurance cost	£4,992
÷ Number months	12
Budgeted monthly insurance cost	£416
Budgeted monthly salaries and benefits
Budgeted salaries and benefits	£21,600
÷ Number of months	12
Budgeted monthly salaries and benefits	£1,800
Budgeted monthly depreciation expense
Budgeted annual depreciation expense	£22,800
÷ Number of automobiles in the pool	25
Budgeted annual depreciation per auto	£912
× Actual number of Autos	26
Total budgeted annual depreciation	£23,712
÷ Number months	12
Budgeted monthly depreciation	£1,976

Requirement 2: Budgeted monthly outside automobile repair costs are calculated as one-twelfth of estimated annual repair costs for actual number of automobiles in operation. It is because outside automobile repair costs are determined by the usage pattern of automobiles over their lifetime. The operator incurs these costs throughout the year over the life of automobiles at irregular intervals and therefore budgeted outside automobile repair cost computed based on mileage does represent the usage pattern of automobile.