Problem 9

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 pools 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 shows actual operating costs for March of the current year compared to the planning budget for March.

Table Summary: Cost control report with three-line heading compares actual results with planning budget numbers and shows the differences between the two. Descriptions of budget items are in first column, actual numbers in March in second column, planning budget numbers in third column, and over or under budget numbers in fourth column. The first row shows miles and the second row shows autos in second and third columns, and the remaining rows show dollar amounts. Numbers that are over budget are shown in parentheses in the (Over) Under Budget column.
Boyne University Motor Pool Cost Control Report For the Month Ended March 31
	March Actual	Planning Budget	(Over) Under Budget
Miles	63,000	50,000
Autos	21	20
Gasoline	$ 9,350	$ 7,500	$(1,850)
Oil, minor repairs, parts	2,360	2,000	(360)
Outside repairs	1,420	1,500	80
Insurance	2,120	2,000	(120)
Salaries and benefits	7,540	7,540	0
Vehicle depreciation	5,250	5,000	(250)
Total	$28,040	$25,540	$(2,500)

The planning budget was based on the following assumptions:

1. $0.15 per mile for gasoline.
2. $0.04 per mile for oil, minor repairs, and parts.
3. $75 per automobile per month for outside repairs.
4. $100 per automobile per month for insurance.
5. $7,540 per month for salaries and benefits.
6. $250 per automobile per month for depreciation.

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

Required:

1. Calculate the spending variances for March. (Hint: Refer to Exhibit 97.)
2. What are the deficiencies in the original cost control report? How do your calculations in part (1) above overcome these deficiencies?