INTRODUCTION TO MANAGEMENT ACCOUNTING

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Problem 8-41 Name Andrea Martin 8-41 Flexible Budgeting
Section 2270
For the convenience of its reporters and staff based in London, CNN operates a motor pool. The
A B C D E F G H motor pool operated with 25 vehicles until February of this year, when it acquired an additional auto-
5 Data Input Section: CNN London Motor Pool mobile. The motor pool furnishes petrol (gasoline), oil, and other supplies for the cars and hires one
6 mechanic who does routine maintenance and minor repairs. Major repairs are done at a nearby com-
7 Kilometers per year per car 60,000 mercial garage. A supervisor manages the operations.
8 Kilometers per liter per automobile 8
9 Cost per liter of gas £ 0.44 Each year the supervisor prepares an operating budget, informing CNN management of the funds
10 Cost per kilometer for oil, minor repairs, etc. £ 0.02 needed to operate the pool. Depreciation on the automobiles is recorded in the budget in order to
11 Cost per automobile for outside repairs £ 108.00 determine the cost per mile.
12 Actual number of cars in use during month 26
13 Actual kilometers driven during month 140,000 The following schedule presents the annual budget approved by the news division. The actual
14 Output Section: costs for March are compared with one-twelfth of the annual budget.
15 Part 1.
16 CNN London Motor Pool CNN London Motor Pool
17 Monthly Budget Report
18 For March 20X1 Budget Report for March 20X1
19 March Monthly Over
20 Actual Budget Under Annual Budget One-Month Budget March Actual Over (Under)
21 Petrol (gasoline) £ 8,200 £ 6,875 £ 1,325 Petrol (gasoline) £ 82,500 £ 6,875 £ 8,200 £1,325
22 Oil, minor repairs, etc. 2,540 2,500 £ 40 Oil, minor repairs, parts, and supplies 30,000 2,500 2,540 40
23 Outside repairs 50 225 -£ 175 Outside repairs 2,700 225 50 (175)
24 Insurance 416 400 £ 16 Insurance 4,800 400 416 16
25 Salaries and benefits 1,800 1,800 0 Salaries and benefits 21,600 1,800 1,800 -
26 Depreciation 1,976 1,900 £ 76 Depreciation Total costs Total kilometers 22,800 1,900 1,976 76
27 Totals £ 14,982 £ 13,700 £ 1,282 £164,400 £13,700 £14,982 £1,282
28 1,500,000 125,000 140,000
29 Part 2. Cost per kilometer £ .1096 £ .1096 £ .1070
30 Type answer starting here Number of automobiles 25 25 26
31
32 The annual budget was constructed based on the following assumptions:
33
34 1. 25 automobiles in the pool
35
36 2. 60,000 kilometers per year per automobile
End of Problem
3. 8 kilometers per liter of petrol for each automobile
4. £.44 per liter of petrol
5. £.02 per kilometer 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.
&LINTRODUCTION TO MANAGEMENT ACCOUNTING 15E
CyberCoach: This number should be over budget
CyberCoach: Numbers in red are over
Here is the complete directions and a display of the budget report for I read for problem 1 and 2. I'm not sure if I am on the right track for Question 1.) I couldn't answer question 2 because I wasn't for sure if question one is right.
The key answer is 14,982. As you look to your right, the answer came from the March Actual column.

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