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Tom has run ABC Car Detailing for the past $6$ years. His static budget and actual results for March

$2024$ are provided next. Tom has one employee who has been with him for all $6$ years that he has

been in business. In addition, at any given time, he also employs two other less experienced workers.

It usually takes each employee $2$ hours to detail a vehicle, regardless of his or her experience. Tom

pays his experienced employee $$29$ per vehicle and the other two employees $$13$ per vehicle. There

were no wage increases in June.

ABC Car Detailing

Actual and Budgeted Income Statements

For the Month Ended June $30,2024$

Budget Actual

Cars detailed $240290$

Revenue $$48,000$ $$66,000$

Variable costs

Costs of supplies $$1,100$ $$1,320$

Labor $$5,760$ $$7,540$

Total variable costs $$6,860$ $$8,860$

Contribution margin $$41,140$ $$57,140$

Fixed costs $$9,700$ $$9,700$

Operating income $$31,440$ $$47,440$

REQUIRED:

a$)$ Undertake a critical literature review referring to at least $3$ journal articles to discuss management$$s

involvement and decisions in flexible budget.

b$)$ Discuss the differences and similarities between flexible budget and static budget. Which one do

you think is better? Why?

c$)$ How many cars did Tom budget for each employee? How many cars did each employee detail?

d$)$ Prepare a flexible budget for June $2024.$

e$)$ Compute the sales price variance and the labour efficiency variance for each labour type.

f$)$ What information, in addition to that provided in the income statements, would you want Tom to

gather, if you wanted to improve operational efficiency?

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