eating gas

i have a 94 mustang gt. has an o/r x pipe magnaflow cat back and 3:73 gears. along with other small mods. the car is eating up a lot of gas. i am only getting approx 10- 11 mpg. also when i went out this morning the gas gauge read a quarter tank then after driving a little it read half a tank. the gauge varies like this often. any ideas?

Bad sending unit. Can't help with your gas problem. Maybe it isn't an engine issue, but rather a brake issue. Does your car shift normally, or does it seem to stay in the lower gears, like it is "pushing". Sometimes old brakes, and especially e-brakes can give you fits and hurt mileage.

bad fuel filter? bad plugs?

When was the last time you gave your car a tune-up? Also i agree with Rod&Custom, sounds like a bad sending unit.