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 bond 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 590 470
Medical supplies $10,575 $8,695 $1,880 U
Lab test 6,157 5,922 235 U
Equipment depreciation 4,270 3,900 370 U
Rent 1,700 1,700 0
Utilities 948 850 98 U
Administration 12,811 12,251 560 U
Total expense $36,461 $33,318 $3,143 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 $18.50q
Lab tests $12.60q
Equipment depreciation $3,900
Rent $1,700
Utilities $850
Administration $10,700 + $3.30q
Required:
Complete the flexible budget performance report for September.

The St Lucia Blood Bank

St Lucia Blood Bank

Flexible Budget Performance Report

For the month ended September 30:

                                              Actual         Flexible      Variances

                                              Results        Budget  

Liters of blood collected         590              590

Medical supplies                 $10,575         $10,915           $340 F

Lab test                                    6,157            7,434            1,277 F

Equipment depreciation        4,270            3,900              370 U

Rent                                         1,700             1,700                  0

Utilities                                       948              850                 98 U

Administration                        12,811          12,647                164 U

Total expense                    $36,461        $37,446            $985 F

Explanation:

a) Data and Calculations:

St Lucia Blood Bank, Cost Control Report, For the month ended September 30

                                              Actual         Planning      Variances

                                              Results        Budget  

Liters of blood collected         590              470

Medical supplies                 $10,575         $8,695         $1,880 U

Lab test                                    6,157           5,922              235 U

Equipment depreciation        4,270            3,900              370 U

Rent                                         1,700             1,700                  0

Utilities                                       948              850                 98 U

Administration                        12,811           12,251              560 U

Total expense                    $36,461         $33,318          $3,143 U

Planning Budget Cost Formulas based on actual quantity of 590 liters of blood collected.

                                                       Flexed Budget

Medical supplies $18.50q                    $10,915 ($18.50 * 590)

Lab tests $12.60q                                    7,434 ($12.60 * 590)

Equipment depreciation                         3,900

Rent                                                          1,700

Utilities                                                       850

Administration $10,700 + $3.30q         12,647 ($10,700 + $3.30 * 590)

b) The flexible budget uses the actual volume of activity to flex the budget so that changes are reflected in the budget.  This is unlike a static budget where the volume of activity remains unchanged.

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