Question

Oak Hill Township operates a motor pool with 20 vehicles. The motor pool furnishes gasoline, oil,...

Oak Hill Township operates a motor pool with 20 vehicles. 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.

Each year, the supervisor prepares a master budget for the motor pool. Depreciation on the automobiles is recorded in the budget to determine the costs per mile.

The following schedule presents the master budget for the year and for the month of July.

OAK HILL TOWNSHIP
Motor Pool
Budget Report for July
Annual Master One-Month Over- or
Budget Master Budget July Actual (Under-) Budget
Gasoline $ 81,000 $ 6,750 $ 8,558 $ 1,808
Oil, minor repairs, parts, and supplies 7,200 600 766 166
Outside repairs 4,800 400 50 (350 )
Insurance 13,200 1,100 1,155 55
Salaries and benefits 55,200 4,600 4,600 0
Depreciation 55,200 4,600 4,830 230
Total cost $ 216,600 $ 18,050 $ 19,959 $ 1,909
Total miles 900,000 75,000 95,000
Cost per mile $ 0.2407 $ 0.2407 $ 0.2101
Number of automobiles 20 20 21

The annual budget was based on the following assumptions:

  1. Automobiles in the pool: 20.
  2. Miles per year per automobile: 45,000.
  3. Miles per gallon per automobile: 20.
  4. Gas per gallon: $1.80.
  5. Oil, minor repairs, parts, and supplies per mile: $0.008.
  6. Outside repairs per automobile per year: $240.

  

The supervisor is unhappy with the monthly report, claiming that it unfairly presents his performance for July. His previous employer used flexible budgeting to compare actual costs to budgeted amounts.

Required:

a. What is the gasoline monthly flexible budget and the resulting amount over- or underbudget? (Use miles as the activity base.) (Do not round intermediate calculations. If the amounts are equal to budget, select "No change".)

b. What is the monthly flexible budget for the oil, minor repairs, parts, and supplies and the amount over- or underbudget? (Use miles as the activity base.) (Do not round intermediate calculations. If the amounts are equal to budget, select "No change".)

c. What is the monthly flexible budget for salaries and benefits and the resulting amount over- or underbudget? (Do not round intermediate calculations. If the amounts are equal to budget, select "No change".)

d. What is the major reason for the cost per mile to decrease from $0.2407 budgeted to $0.2101 actual?

Decreased unit fixed costs.
Decreased variable costs.

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