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 operated with 20 vehicles until February, when an additional automobile was acquired at the request of the university administration. 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. Each year, the supervisor of the motor pool prepares an annual budget, which is reviewed by the university and approved after suitable modifications.

The following cost control report shows actual operating costs for March of the current year compared to one-twelfth of the annual budget.

The annual budget was based on the following assumptions:

(a)        $0.15 per mile for gasoline

(b)        $0.04 per mile for oil, minor repairs, and parts

(c)        $900 per automobile per year for outside repairs

(d)       $1,200 per automobile per year for insurance

(e)        $7,540 per month for salaries and benefits

(f)        $3,000 per automobile per year for depreciation

The supervisor of the motor pool is unhappy with the report, claiming it paints an unfair picture of the motor pool’s performance.

Required:

1.         Prepare a new performance report for March based on a flexible budget that shows spending variances.

2.         What are the deficiencies in the original cost control report? How does the report that you prepared in part (I) above overcome these deficiencies?

Boyne University Motor Pool Cost Control Report For the Month Ended March 31 Monthly Annual Budget March (Over) Budget (2 of Actual Under Annual Budget Budget) 600,000 63,000 Miles 50,000 Autos 20 20 21 S 90,000 S 7,500 $9,350 Gasoline ($1,850) Oil, minor repairs, parts 24,000 2,000 2,360 (360) Outside repairs 18,000 1,500 1,420 80 24,000 2,120 Insurance. 2,000 Salaries and benefits 90,480 7,540 7,540 (120) Vehicle depreciation 60,000 5,000 5,250 (250) S 306.480 S 25,540 S28.040 Total (S2,500)