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
	Actual Results		Planning Budget		Variances
Liters of blood collected		530		410
Medical supplies	$	10,701	$	8,815	$	1,886	U
Lab tests		5,888		5,658		230	U
Equipment depreciation		4,900		4,500		400	U
Rent		2,000		2,000		0
Utilities		1,110		1,000		110	U
Administration		13,189		12,599		590	U
Total expense	$	37,788	$	34,572	$	3,216	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	$21.50q
Lab tests	$13.80q
Equipment depreciation	$4,500
Rent	$2,000
Utilities	$1,000
Administration	$11,000 + $3.90q

  
Required:

1.Complete the flexible budget performance report for September. (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.)

	St. Lucia Blood Bank Flexible Budget Performance Report For the Month Ended September 30 Actual Results Flexible Budget Planning Budget Liters of blood collected 530 410 Medical supplies $10,701 $8,815 Lab tests 5,888 5,658 Equipment depreciation 4,900 4,500 Rent 2,000 2,000 Utilities 1,110 1,000 Administration 13,189 12,599 Total expense $37,788 $34,572

Answer 1

• Requirement

	Actual Results	Spending Variance		Flexible Budget	Activity variance		Planning Budget
Litres of blood collected (q)	530			530			410
	[A]	[B = Difference between A & C]		[C = Fixed + (Var x Actual units)]	[D = Difference between C & E]		[E= Fixed + (Var x Planned units)]
Medical Supplies	$10,701	$694	F	$11,395	$2,580	U	$8,815
Lab Tests	$5,888	$1,426	F	$7,314	$1,656	U	$5,658
Equipment depreciation	$4,900	$400	U	$4,500	$0	None	$4,500
Rent	$2,000	$0	None	$2,000	$0	None	$2,000
Utilities	$1,110	$110	U	$1,000	$0	None	$1,000
Administrative	$13,189	$122	U	$13,067	$468	U	$12,599
Total Expenses	$37,788	$1,488	F	$39,276	$4,704	U	$34,572

--Calculation for Flexible budget

Litres of blood collected (q)
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Medical Supplies	$0	+(	$               21.50	x	530	)
Lab Tests	$0	+(	$               13.80	x	530	)
Equipment depreciation	$4,500	+(		x	530	)
Rent	$2,000	+(	$                      -	x	530	)
Utilities	$1,000	+(	$                      -	x	530	)
Administrative	$11,000	+(	$                  3.90	x	530	)
Total Expenses	$18,500	+(	$               39.20	x	530	)