The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the

Question:

The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. 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 until February of this year, when an additional automobile was acquired. The motor pool furnishes 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.

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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 kilometre. The schedule below presents the annual budget approved by the university. The actual costs for March are compared with one-twelfth of the annual budget.

University Motor Pool Budget Report for March 2011 Annual One-Month March Over Actual (Under) Budget Budget Petrol [gaso

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 petrol for each automobile

4. £0.44 per litre of petrol

5. £0.02 per kilometre 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 claims it presents her performance unfairly. Her previous employer used flexible budgeting to compare actual costs with budgeted amounts.

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

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