Question

The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a very busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month. A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. Continued support from the government depends on the blood bank's ability to demonstrate control over its costs. St. Lucia Blood Bank Cost Control Report For the Month Ended September 30 Planning Budget Actual Results Variances Liters of blood collected 620 500 Medical supplies Lab tests $ 10,350 8,500 6,235 3,955 1,550 867 $1,850 U 235 U 355 U 0 92 U 545 U 6.000 3,600 1,550 775 12,050 Equipment depreciation Rent Utilities Administration Total expense 12,595 $35,552 32,475 3,077 U The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget The following cost formulas were used to construct the planning budget Cost Formulas Medical supolies

Answer 1

St. Lucia Blood Bank

Flexible Budget Performance Report

For the Month Ended September 30

	Actual Results	Spending Variance		Flexible Budget	Activity Variance		Planning Budget
Liters of blood collected	620			620			500
Medical supplies	$10,350	($10,350 - $10,540) = $190	F	(620 *$17) = $10,540	($10,540 - $8500) = $2,040	U	$8500
Lab test	6,235	($6,235 - $7,440) = 1,205	F	(620 * $12) = 7,440	($7,440 - $6,000) = 1,440	U	6,000
Equipment depreciation	3,955	($3,955 - $3,600) = 355	U	3,600	($3,600 - $3,600) = 0	N	3,600
Rent	1,550	($1,550 - $1,550) = 0	N	1,550	($1,550 - $1,550) = 0	N	1,550
Utilities	867	($867 - $775) = 92	U	775	($775 - $775) = 0	N	775
Administration	12,595	($12,595 - $12,410) =185	U	[$10,550 + (620 * $3)] = $12,410	($12,410 - $12,050) = 360	U	12,050
Total expense	$35,552	($35,552 - $36,315) = $763	F	$36,315	($36,315 - $32,475) = $3,840	U	$32,475

Note 1 : Flexible Budget for variable costs are calculated by multiplying actual liters collected & per unit cost as per planning budget.

Note 2 : Equipment depreciation , rent & utilities are fixed costs thus those are same in flexible budget & planning budget.