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		880		700
Medical supplies	$	10,311	$	8,155	$	2,156	U
Lab tests		12,223		10,045		2,178	U
Equipment depreciation		2,100		1,900		200	U
Rent		1,600		1,600		0
Utilities		338		310		28	U
Administration		14,055		13,890		165	U
Total expense	$	40,627	$	35,900	$	4,727	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	$14.35q
Equipment depreciation	$1,900
Rent	$1,600
Utilities	$310
Administration	$1.70q

  

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.)

	St. Lucia Blood Bank Flexible Budget Performance Report For the Month Ended September 30 Actual Results Spending Variances Flexible Budget Activity Variances Planning Budget Medical supplies $10,311 $8,155 Lab tests 12,223 10,045 Equipment depreciation 2,100 1,900 Rent 1,600 1,600 Utilities 338 310 Administration 14,055 13,890 Total expense $40,627 $35,900

Answer 1

• All working forms part of the answer
• While calculating Flexible Budget Data, variable cost per unit budgeted (of planning budget) is multiplied by the actual units volume, while fixed cost remains same as planning budget data.
• Working for calculation of Flexible Budget Data:

	Planning Budget Data	Variable cost per unit	Total variable cost for 700 units	Total Fixed cost	Flexible Budget Variable cost	Flexible budget total cost
	[A = given]	[B = given]	[C = 700 units x B]	[D = A – C]	[E = 880 units x B]	[F = D + E]
Medical supplies	$      8,155.00	$            11.65	$          8,155.00	$                   -	$    10,252.00	$    10,252.00
Lab tests	$    10,045.00	$            14.35	$        10,045.00	$                   -	$    12,628.00	$    12,628.00
Equipment depreciation	$      1,900.00	$                   -	$                       -	$      1,900.00	$                    -	$      1,900.00
Rent	$      1,600.00	$                   -	$                       -	$      1,600.00	$                    -	$      1,600.00
Utilities	$          310.00	$                   -	$                       -	$          310.00	$                    -	$          310.00
Administration	$    13,890.00	$               1.70	$          1,190.00	$    12,700.00	$       1,496.00	$    14,196.00
TOTAL	$    35,900.00		$        19,390.00	$    16,510.00	$    24,376.00	$    40,886.00

• Requirement completed – Worksheet provided:

St. Lucia Blood Bank
Flexible Budget Performance Report
For the Month Ended September 30
	Actual Results	Spending Variances		Flexible Budget	Activity Variances		Planning Budget
Medical supplies	$                                       10,311.00	$                          59.00	Unfavourable	$           10,252.00	$                2,097.00	Unfavourable	$                8,155.00
Lab tests	$                                       12,223.00	$                        405.00	Favourable	$           12,628.00	$                2,583.00	Unfavourable	$              10,045.00
Equipment depreciation	$                                         2,100.00	$                        200.00	Unfavourable	$             1,900.00	$                             -	None	$                1,900.00
Rent	$                                         1,600.00	$                                 -	None	$             1,600.00	$                             -	None	$                1,600.00
Utilities	$                                             338.00	$                          28.00	Unfavourable	$                 310.00	$                             -	None	$                    310.00
Administration	$                                       14,055.00	$                        141.00	Favourable	$           14,196.00	$                   306.00	Unfavourable	$              13,890.00
Total expense	$                                       40,627.00	$                        259.00	Favourable	$           40,886.00	$                4,986.00	Unfavourable	$              35,900.00