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		600		480
Medical supplies	$	10,512	$	8,640	$	1,872	U
Lab tests		6,187		5,952		235	U
Equipment depreciation		4,165		3,800		365	U
Rent		1,650		1,650		0
Utilities		921		825		96	U
Administration		12,741		12,186		555	U
Total expense	$	36,176	$	33,053	$	3,123	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	$18.00q
Lab tests	$12.40q
Equipment depreciation	$3,800
Rent	$1,650
Utilities	$825
Administration	$10,650 + $3.20q

  
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 Revenue and Spending Variances Flexible Budget Activity Variances Planning Budget Liters of blood collected 600 600 480 Medical supplies $10,512 F U $8,640 Lab tests 6,187 F U 5,952 Equipment depreciation 4,165 365 U 3,800 0 None 3,800 Rent 1,650 0 None 1,650 0 None 1,650 Utilities 921 96 U 825 0 None 825 Administration 12,741 U U 12,186 Total expense $36,176 F U $33,053

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	600			600			480
	Medical supplies	$10,512	$288	F	$10,800	$2,160	U	$8,640
	Lab tests	$6,187	$1,253	F	$7,440	$1,488	U	$5,952
	Equipment depreciation	$4,165	$365	U	$3,800	$0	none	$3,800
	Rent	$1,650	$0	none	$1,650	$0	none	$1,650
	Utilities	$921	$96	U	$825	$0	none	$825
	Administration	$12,741	$171	U	$12,570	$384	U	$12,186
	Total expenses	$36,176	$909	F	$37,085	$4,032	U	$33,053
	*Calculation of Flexible budget:
	Liters of blood collected	600
	Medical supplies	$18.00 * 600
	Lab tests	$12.40 * 600
	Equipment depreciation	$3,800
	Rent	$1,650
	Utilities	$825
	Administration	$10,650 + ($3.20 * 600)
	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.