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 particularly 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
	Actual Results		Planning Budget		Variances
Liters of blood collected		980		800
Medical supplies	$	11,464	$	9,320	$	2,144	U
Lab tests		13,704		11,520		2,184	U
Equipment depreciation		2,080		1,800		280	U
Rent		1,600		1,600		0
Utilities		304		280		24	U
Administration		14,085		13,940		145	U
Total expense	$	43,237	$	38,460	$	4,777	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 supplies	$11.65q
Lab tests	$14.40q
Equipment depreciation	$1,800
Rent	$1,600
Utilities	$280
Administration	$12,500 + $1.80q

  

Required:

1. Complete the performance report for September using the flexible budget approach. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations and round your final answers to nearest whole dollar.)

Answer 1

			Flexible buget
liters of blood collected					980
			Variable	fixed
medical supplies			11.65		11417
lab tents			14.4		14112
Equipment depreciation				1,800	1,800
Rent				1,600	1,600
Utilities				280	280
Administration			1.8	12500	14264
total expense			27.85	16180	43473
	Flexible budget = fixed component + actual 980 liters*variable component)
				Flexible Budget Performance Report
		Actual	spending variance		Flexible	Activity variance		planned budget
		resutl			budget
liters of blood collected		980			980			800
Medical supplies		11,464	47	U	11417	2,097	U	9,320
labt tests		13,704	408	F	14112	2,592	U	11,520
Equipment depreciation		2,080	280	U	1,800	0	N	1,800
Rent		1,600	0	N	1,600	0	N	1,600
Utilities		304	24	U	280	0	N	280
Administration		14,085	179	F	14264	324	U	13,940
total expense		43,237	236	F	43473	5,013	U	38,460