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		780		600
Medical supplies	$	9,258	$	7,110	$	2,148	U
Lab tests		10,768		8,580		2,188	U
Equipment depreciation		1,640		1,400		240	U
Rent		1,200		1,200		0
Utilities		350		320		30	U
Administration		14,495		14,340		155	U
Total expense	$	37,711	$	32,950	$	4,761	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	$11.85q
Lab tests	$14.30q
Equipment depreciation	$1,400
Rent	$1,200
Utilities	$320
Administration	$13,200 + $1.90q

  

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

Ans.	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	780			780			600
	Medical supplies	$9,258	$15	U	$9,243	$2,133	U	$7,110
	Lab tests	$10,768	$386	F	$11,154	$2,574	U	$8,580
	Equipment depreciation	$1,640	$240	U	$1,400	$0	none	$1,400
	Rent	$1,200	$0	none	$1,200	$0	none	$1,200
	Utilities	$350	$30	U	$320	$0	none	$320
	Administration	$14,495	$187	F	$14,682	$342	U	$14,340
	Total expenses	$37,711	$288	F	$37,999	$5,049	U	$32,950
	*Calculation of Flexible budget:
	Liters of blood collected	780
	Medical supplies	$11.85 * 780
	Lab tests	$14.30 * 780
	Equipment depreciation	$1,400
	Rent	$1,200
	Utilities	$320
	Administration	$13,200 + ($1.90 * 780)
	Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Flexible budget is prepared on the basis of actual units (machine hours).
	*Fixed expenses remain same as planning budget.
	*Increase in expenses from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results & Planning budget to flexible budget =   Favorable.