KGV Blood Bank_Flexible Budget

$9.00

Description

The KGV 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 about 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. (The currency on St. Lucia is
the East Caribbean dollar.) Continued support from the government depends on
the blood bank’s ability to demonstrate control over its costs.

KGV Blood Bank

Cost Control Report

For the Month Ended September 30

Planning Budget

Actual Results

Variances

Liters of blood collected . .

600

780

Medical supplies . . . . . . . .

$7,110

$9,252

$2,142

U

Lab tests . . . . . . . . . . . . . .

8,610

10,782

2,172

U

Equipment depreciation. .

1,900

2,100

200

U

Rent . . . . . . . . . . . . . . . . .

1,500

1,500

0

Utilities . . . . . . . . . . . . . . .

300

324

24

U

Administration . . . . . . . . .

14,310

14,575

265

U

Total expense . . . . . . . . . .

$33,730

$38,533

$4,803

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 . . . . . . . . . . . . . . . . . . .

$14.35q

Equipment depreciation . . . . . . .

$1,900

Rent . . . . . . . . . . . . . . . . . . . . . .

$1,500

Utilities . . . . . . . . . . . . . . . . . . . .

$300

Administration . . . . . . . . . . . . . .

$13,200 + $1.85q

Required:

1. Prepare a new performance report for September using the flexible
budget approach.

2. Do you think any of the variances in the report you prepared should
be investigated? Why?

Reviews

There are no reviews yet.

Be the first to review “KGV Blood Bank_Flexible Budget”

Your email address will not be published. Required fields are marked *