Problem:
The Antigua Blood Bank, a private charity partly supported by government grants, is located on the caribbean island of antigua. 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 Antigua, but residents of Antigua willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 10% more blodd than had been origially planned ofr 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 fovernment depends on the blood bank;s ability to demonstrate control over its costs.
Antigua Blood Bank
Cost Control Report
For the month ended September 30
Actual Budget Variance
Liter of blood collected 950 820 130
Variable costs:
Medical Supplies 12,500 10,660 1,840
Lab tests 7,900 7,790 110
Refreshments for donors 6,700 5,740 960
Administrative supplies 2,300 2,050 250
Total variable cost 29,400 26,240 3,160
Fixed costs:
staff salaries 15,000 15,000 0
Equipment depreciation 6,800 6,600 200
rent 4,000 4,000 0
utilities 880 810 70
total fixed cost 26,680 26,410 270
total cost $ 56,080 $52,650 $3,430
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 nieghboring islandfs. He also pointed out that the additional costs had been fully covered by payments from hrateful recipients on the other islands. The governments official who prepared the 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.
Required to do:
Question 1. Prepare a new performance report for September using the flexible budget approach. (Note: Even through though some of these costs might be classified as direct costs rather than as overhead, the flexible budget approach can still be used to prepare a flexible budget performance report.)
Question 2. Do you think any of the variances in the report you prepared should be investigated? Why?